Setting prices for second-hand video games

Abstract

In the transition to the purchase and sale of video games in its digital format, the second-hand market has grown significantly given the importance that the consumer provides to physical video games. Given the uncertainty that exists about the quality of a video game, videogame stores have become intermediaries that facilitate the purchase/sale and guarantee the quality of these. In this document, we analyse the interaction between a store and a video player, where each agent initially owns a video game used to determine the price of the object. The agents interact through a three-stage game with incomplete information where the store sets the purchase and sale prices of the used video games without knowing the valuation that the video player has on them. It is shown that there is a unique subgame perfect Nash equilibrium when the valuations are independent and follow a uniform continuous distribution. The comparative statics shows a positive relationship between the equilibrium prices and how the video player values the video games; Also, it is observed that, in equilibrium, the video player does not sell his good. Keywords: Subgame perfect Nash equilibrium, second-hand markets, pricing