Price Lags in the Video Game Market


The P-Cult is CulturePopTV.com’s Business Editor and op-ed columnist. In his installment series, “The Business of Collecting,” he offers business insights for pop culture events, collector markets and relevant industry and sector analysis.

The P-Cult also currently works as an advisory consultant, focusing on finance and accounting process improvement and business strategy within the retail and consumer products sector. He has worked for three of the top four consulting firms in the world and maintains several professional certifications.

The P-Cult holds three degrees in accounting, corporate finance and accountancy.


 Price Lags in the Video Game Market

On a daily basis, I review financial processes to seek out small anomalies that, when discovered and exploited, can be used to either reduce costs or increase revenue. When I propose services to potential clients, I try to do so in terms of value. Instead of saying, “our services will cost you $X,” I say “our services will save you approximately $XX – $XX amount, and we only charge $X.” You may have just realized that this has nothing to do with video games (yet). However, what is important to understand is the mindset and background that I apply to the strategies and ideas that we’ll tackle later on.

Now there is probably no collector that would tell you that collecting video games is a good investment. That’s because it’s the God’s honest truth. Nothing you learn in this article will get you rich. However, if we establish goals and purchase/sell specific items at the correct time, and exploit systematic weaknesses, there is a lot of potential for savings. Each article in this series will take you through a real-life example (there’s no theory here, only facts) and explain the background and financial premise for each topic discussed.

“[T]here is probably no collector that would tell you that collecting video games is a good investment.”

A few weeks ago, I was traveling to California for business and visited a few local game stores to check out what they had, as well as their prices. After walking through one of them, I noticed a couple in-store trends: 1) a lot of their retro games were reasonably priced, and 2) their modern games were, in my opinion, mostly overpriced. Of course, my quick analysis over their pricing is biased and based only on my thoughts at the time, but it was enough data to formulate a few ideas. I’ll discuss one of these ideas below:

When cars were first invented, there were no speed limits or stop signs. After enough people saw the need, laws were written to address this, and the gap was closed. Easy concept, right? Well, this also applies to finance and, more importantly for you, collecting.

Earlier that week, I had been to a large retail chain game store and took note of their 3 for $10 sale on select PS3 and XBOX 360 titles. I could remember a few games, like Infamous 2 and a couple others, that had caught my eye. After ascertaining how much trade-in value those games fetched at the local game store, I realized that they were roughly 50% of what the game was priced at on pricecharting.com (I confirmed this later on. At the time, it was only a guess). Three of the games I had noted were worth $5 individually to the store, as they were being sold for $10-15 each.

If you were to return later that day with those three PS3 games from the 3/$10 bin, you would have received $15 in store credit, yielding you a return of 33%. The reason you’d be able to take advantage of this is because of price lag.

The data source that the local game store used suffered from an exploitable pricing delay effect. There are other factors at work here too (transaction volume, length of time of analysis period), but for the sake of brevity, I won’t go into the mechanics of how pricecharting.com and other financial concepts work just now.

“The data source that the local game store used suffered from an exploitable pricing delay effect.”

If we apply the analogy mentioned earlier, you could say that, eventually, laws will be written. Meaning, the market price would capture the sales of Infamous 2 and other select games at $3.33 and adjust itself accordingly. However, between the time the need is realized and the gap is closed, speeding and other would-be violations can take place. This is when you can make your return of $1.67 (33%) by trading the game in and using it to buy wonderful, reasonably priced retro games!

 

– The P-Cult

 

Editor’s Note: The release of this article was withheld until the promotion period mentioned had expired. The store alluded to within the article was also contacted and made aware of this vulnerability. This decision was made at the discretion of the columnist in an effort to protect local business.

 

Be sure to read to read the next article in The Business of Collecting series, “Applying Dollar Cost Averaging to Collecting”.

 


You can contact The P-Cult with further questions or comments at thepcult@gmail.com. Also, don’t forget to check back at CulturePopTV.com for the next installment in The Business of Collecting.

One Comment on ““Price Lags in the Video Game Market”

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