Hello, and welcome to a new edition of Free To Play. Until now, I’ve used examples from games that correlate with libertarian philosophy, but today, I’m trying something different. The next few Free To Plays will be a defense of free market economics using video game topics as illustrations of the various technical ideas that go with such a defense. In this article, I’m going to use a common problem among NES collectors that demonstrates a core viewpoint of libertarian economics – the law of supply and demand.
I am a NES collector, and like many collectors, I’m unhappy with the meteoric rise in price for NES games. Games that even just a couple of years ago went for under $5 may now require a full $20 just for the privilege of owning the actual cart.* This is just scratching the surface, not even mentioning the rare Holy Grails like the Nintendo World Championships or Little Samsons.
Now, a lot of collectors are understandably getting upset at how fast the prices on classic games are rising, and are blaming various sources for this. From AVGN videos convincing the unwashed masses that having a NES around would be a good idea, to eBay scalpers and asshole resellers at the flea market offering the most common games for the standard price of an arm and a leg, the blame has been spread around, but they missed the real perpetrators: us. Those of us who buy used games have been the reason why prices have gone up, and it’s perfectly fine that they did so. The prices are a fundamental part of the free market system and the rising prices are proof that the system is working. To begin, let’s take a look at the law of supply & demand.
Before I get into that theory, let’s use an analogy most of us are familiar with to grasp the basics. Everyone knows that our favorite citrus fruits become more expensive in the winter, while they are ridiculously cheap and plentiful in summer. What many may not be considering here is that the reason the fruits become more expensive in winter is that while our appetites for citrus goodness doesn’t change, the supply we can get our hands on does. Now, in the summer when the fruits are readily available here in the good ol’ US of A, there is much more fruit while we still want to eat about the same amount, so the price drops.
The law itself flows logically and is so ingrained in our thinking that most of the time we barely notice we’ve made use of it. None of us find it weird at all that a diamond is worth far more than a similar sized chunk of salt, yet both are rocks. Why? Because not only do diamonds require far more work to be used than salt, there are far less diamonds available versus the mind-numbingly gigantic amount of salt on Earth. Going even further with this analogy, one gram of diamond is chemically the same as one gram of graphite, as both are nearly entirely carbon, yet graphite goes for pennies compared to diamonds. This is because the chemical processes that create graphite are far less intense than those that produce diamonds, and therefore can be done far cheaper. This is the simple idea behind the famous Law of Supply and Demand. The basics of the law of supply and demand are fairly straight forward. If demand exceeds supply, prices will rise; if supply exceeds demand, then prices will fall. While this doesn’t sound like world-changing stuff, this simple law is the foundation upon which all of modern economics – of capitalist or statist flavors – is firmly built.
Now that we’ve done the textbook boring infodump, let’s get back to the important things – video games. Let’s look at two games in the same series: Contra and Contra Force. Contra is a seminal classic; a game that every single gamer must beat at least once in their lives. Contra Force is a shoddy beat ’em up that just got the Contra name slapped on it here in the US. Nobody in their right mind would prefer Contra Force to Contra, yet CF goes for nearly three times what Contra does. Why is that? Contra Force was only released in North America, and was a crappy game released in 1992 which was very close to the end of the NES’s life span. Contra was released just 2 years after the NES was, and it was one of the highest selling games released for the console, selling millions of copies. Contra Force will end up costing more in the quiet free market of collecting compared to its far superior brother because it is harder to find. Contra Force is citrus in winter while Contra is that lovely orange in mid June.
Contra has another item to teach us about how supply & demand affect prices. Contra is a game that is often complained about for its relatively high price considering its ubiquity when other equally common games go for far less. In this case, the sheer amount of people who want to play the game are what drives the higher prices. Nearly everyone who decides they want to get into real retrogaming – no emulators here, boss – and buys a NES wants to own Contra because it’s that freaking awesome. The supply of Contra is not getting any bigger, yet the demand for the game has steadily increased, driving up the prices to their current atmospheric levels. Simply put, while we have the same amount of cartridges available, more people want it, so we have to pay more for it. Even the Super Mario Bros./Duck Hunt cartridge, one of the highest selling games of all time with over 40 million units sold – has been rising near the $10 mark due to the massive influx of new gamers who want to own the classics. I will say that anyone who pays even $5 for that cartridge isn’t trying hard enough, but I digress.
Another point related to the physical items themselves is the hoarder phenomenon. Lately it seems that whenever a certain game gets to be known for having a high price tag, or is believed to be heading that direction, some individuals will buy as many copies as they can find to intentionally lower the outstanding supply. Their manipulation of the system means that people will pay a higher price for the game now that it’s become even harder to find. Such manipulations can be quite profitable, but they have a large risk if you’re betting on something to become a collector’s item, as many a would-be scalper has found out. Though their actions are reprehensible, they are a natural reaction to the law of supply and demand – doesn’t mean we have to like those assholes.
One of the foundations that allows the market to work is information, but in the Information Age, we sometimes receive information that is not quite right, or even plain wrong, and this can skew the supply-demand curves. Keeping with the NES collecting theme, the TV show Storage Wars offered some of the most blatant lies about game collecting that you could find. This “reality” show features people who bid on auctions for unclaimed storage units to resell the items inside. The show is as scripted as any sitcom as they always find some kind of treasure in every single unit purchased. Normally, I’d just write it off as “Dumb Trash TV For White Trash Morons,” but one episode has become the bane of many a game collector’s existence. In this episode, one of the random morons starring in the show happens across a NES in one of the purchased units, and immediately declares it to be worth multiple thousands of dollars because it’s a NES Model 001. The problem with this? That’s the standard, grey “toaster” model we all know and love. In reality, a working model 001 is worth about $30 – $50, depending upon condition. It’s this lie that I think more than anything else, spurred the skyrocketing prices, but those idiots posting on Craigslist demanding $500 for a NES with Super Mario Bros aren’t helping either.
This is what people are attacking, and with very good reason. These people are at best, uninformed and at worst, actively trying to profit upon the ignorance of others. It is not the failure of the market that explains the current market prices, but the success of the market that does so. The market is simply reacting logically to the rapid glut of new demand that has swept our hobby – the going prices are rising due to an unchanged supply being in far higher demand. To use the original analogy, imagine that one year’s orange harvest was devastated by some kind of disaster, like a fungus that kills the plants. That year we would have a lot fewer oranges, but our demand basically doesn’t change. We would expect to pay higher prices for the oranges that year because we all know that’s how it works. Why should we treat video games as any less of a commodity?
The law of supply and demand also neatly explains why so many of the more expensive NES games are so horrible, which on face value seems counterintuitive. This may be difficult, so take your time: Good games sell better than bad games, so there’s less bad games to go around. Although the supply of bad games is decreasing, demand is increasing which causes their prices to inflate. The games that were horrible sellers often end up being the most desirable collector’s items simply because of there being such a small supply of the cartridges. I should note that the Call of Duty games are a notable exception to “Bad games sell badly.”
Let’s look at how the law of supply and demand efficiently removes bad sellers. If the average market price of a game is $20, then that’s because most people consider that a fair enough price to sell/buy regularly at. Now, there are always those resellers who seem to think that every game is a holy grail so they price things far too high. Let’s say they’re selling our hypothetical game at $35, which is almost twice the going rate. They will almost certainly have trouble selling their item because anyone can go and find a copy for sale far cheaper, so they have no reason to buy from our overzealous reseller. This leaves the reseller with two options: he can keep trying to sell for his inflated price in the hopes of finding a sucker or he will price his item lower to attract a buyer. Sellers who repeatedly overprice their wares end up bankrupt because nobody will buy something overpriced, except Starbucks’ customers. Of course, retailers who sell for lower than the average price can often make a killing, which is how Walmart made its billions. Once the market has established a fair price, it is obviously in a seller’s best interest to not stray too far from it.
There is a term for when the market finds the ideal price, and it’s called equilibrium. When a price is at equilibrium, as the name suggests, it perfectly balances supply and demand. A price above equilibrium will have too low of demand, while too low of a price will outstrip supply. Buyers don’t want too high of a price and sellers don’t want the opposite. Eventually the two will meet in the middle and create the equilibrium price. This is the foundation of why the free market works: the instant exchange of information, thanks to the price system which is governed by supply & demand.
But what happens if a price is artificially forced by government intervention? It screws up the supply/demand curve. If a government forces an artificially lower price, it will create a large demand for a shrinking supply, thereby creating a shortage. If a government forces an artificially higher price, the supply will outgrow demand, creating a giant surplus. Neither of these are desirable, as it either screws over the consumer or the producer.
What I’ve been getting at this article is that the market is not screwing up by making NES games more expensive; it’s working correctly. The system of prices is one of the building blocks of a free market economy, and is likely the most familiar self-regulation that the market does. Retrogames are one of the freest markets that still exist, so the price system is even more important. Instead of being the product of misinformed rubes who take “reality TV” as God’s honest truth, the current state of high prices is a rational response to a frenzied increase in demand for a static supply. In fact, higher prices are the only rational response to the current flood of newbie collectors and retrogamers who want the real deal.
This is the problem a lot of people who dislike capitalism just cannot understand: the market works by what is rational, not what feels right. The market operates so well because it is based upon everyone making the actions that work best for them. Each person’s attempt to help themselves ends up helping everyone, as it actually keeps prices low. The only reason NES prices have gotten where they have is because we have driven them there, and it shows no signs of slowing down. You want prices to drop? You can either hope for a collecting crash where all the demand plummets, or stop paying so freaking much for games and eventually the market will correct itself.
I hope you’ve enjoyed this little educational endeavor into some free market economics. I’m hoping to continue down this route and explore more of what makes the free market so amazing. As always, if you have comments, questions or whatever, feel free to add them in the comment section below or catch me on Twitter @ithinkibrokeit. Thanks for reading.
*All prices were retrieved from the absolutely fantastic resource Price Charting which offers handy price tables, and even graphs showing the changes in prices for individual items. It is a firm requirement for your bookmarks folder if you would like to get into game collecting. I cannot recommend the site enough.