Hello and welcome to another Free To Play. In a previous article I covered the NES collecting scene and how it perfectly illustrates the laws of supply and demand, and you people seemed to really enjoy it. A good number of you have actually reached out to me to ask what I thought of Gamestop’s announcement that they would start accepting trade-ins, and even selling retro gaming items again. I wanted to wait to talk about this for when I had a solid idea of how to approach the topic, and the best option is to cover the topic of market distortions.

 

Gamespot Chrono Trigger

Let the pricing begin!

 

At its heart, the free market doesn’t run on money, commodities, scarcity or even greed. The market runs on information which is why our current Information Age is marked by an increasing globalization of all markets. As our respective local markets merge with the markets of others in the awe-inspiring complexity of global capitalism, information has gone from being a useful tool to being an essential requirement of modern life. When you have the information flow like we do today, there’s essentially two options for handling it: Drink it straight from the fire hose or condense multiple bits into one or two items. The price of a corporation’s stock is a representation of lot’s of information regarding the health of that company, boiled down to a simple price point that tells you quickly whether that company is doing good or bad. We see this so often that it doesn’t even register that the stock price is an incredibly complex system that boils down to a simple price tag.

That segues perfectly into the crux of this article.  Chatting about the free market inevitably leads to discussions of resource allocation or spurring innovations, yet we rarely discuss price as an integral part of why the market works.  Prices represent a shorthand for all the various bits of information that affect the worth of any item into a simple string of numbers that anyone can grasp. It doesn’t take a PhD in economics to realize that something that costs $5 is far less valuable than one that costs $500. Prices allow a quick transmission of much data in a way anyone can read regardless of language. While it may take a bit of extra information – such as exchange rates for example – anyone  who looks at a price comparison can make conclusions on its value.  The sheer amount of information available today at a moment’s notice means that prices can update in the blink of an eye but there are always problems. I am an unabashed capitalist, but I recognize that, as amazing as the market is, it is not perfect. Information can just as easily become disinformation and skew opinions. These are usually called market distortions because they are exactly what it says on the tin.

 

GameStop New York Stock Exchange

This is not how game prices are determined.

 

Most market distortions clear themselves up rapidly in what’s called a market correction.  Once correct information comes out, the market adjusts itself appropriately.  The incorrect information that causes the distortions is for the most part innocent errors; someone gets information wrong and it propagates quickly. In those cases simple research often finds that these errors were made and the correct information gets released.  The other two major causes of market changes go into two categories: good changes based on the standard market forces of supply and demand, and the bad changes based upon information that was purposefully incorrect. Let’s take a look at two of those changes that have come up recently in the game collecting news. We’ll start with the good changes.

Recently, Gamestop announced it would be testing out selling retro games again (and as of June 22, 2015 they have begun). The stores would accept trade ins on classic consoles and games, while it would only sell them on their website. We can talk about some of Gamestop’s less savory actions later but this is one action that isn’t universally hated… or approved, for that matter.  Any thread discussing this will be almost perfectly split between those decrying Gamestop as the very incarnation of evil, and those who state this will help them get a hold of the games they want easier. I tend to be of the second belief, as I live in middle of nowhere so Gamestops are the best option around me to buy games. I do believe that prices will be affected by this move, but this isn’t necessarily a bad thing.

 

Despite what some say, this is not a place of pure, unfiltered evil. That's Congress.

Despite what some say this is not a place of pure evil, nor does its address start with 666. It’s actually at 22 Acacia Avenue.

 

I have discussed the mechanisms of supply and demand as methods of determining prices in a previous article, but I’ll briefly detail why that matters in regards to Gamestop. This may be hard to grasp, but the supply of retro games and consoles is finite. With this ground-shaking revelation we know that one half of the equation is spoken for, so the only change can be in demand.  Gamestop has the advantage over every single collector in that they have far more resources and manpower to accumulate games beyond the fact that gamers will bring the games TO them. Due to this, supply of games out in the wild may very well go down as non-collectors get a hold of the games and trade them in for cash/credit which could thereby drive prices up. How Gamestop will sell these games is a bit of a mystery at the moment, with the exception that we know it will be only from their online store (and at the time of this writing, they appear to be following the eBay model for pricing).

Gamestop has offered classic games in their PowerUp rewards system. The ability to buy games from the site with normal payments and reward points may actually increase the amount of people buying games and possibly counteract the games taken out of the wild for trade in value. As the program is only rolled out to less than 300 stores at present, it’s really hard to guess how this will affect the prices of games. One thing I should mention, and that I have trouble corroborating, is a rumor that Gamestop won’t take trade ins of the more expensive and rare games. That alone will help out on the already skyrocketing price of rarer games, but I may have to change my opinion at a later date. Yes, the market isn’t the only thing that responds to new and updated information. What do you think we are, Congress? *Editors note: It would appear that on Gamestops online store they are selling a few rare/expensive games like Chrono Trigger as seen in the screen shot earlier in the article.*

Before I go on to deliberate misinformation, I want to touch briefly on an interesting side note. The availability of physical copies of retro games is of course dependent upon their supply as well as demand, but what makes games so interesting is that their value is not always dependent upon the actual item as much as the game itself. The rise of digital services such as Nintendo’s Virtual Console and Sony’s Playstation Network Classics allows for classic games to be downloaded for very cheap prices and played like they were the actual cartridge/disc. Two examples allow for a full examination of the phenomenon: Earthbound on the SNES and The Misadventures of Tron Bonne on the PS1. Earthbound is a perennial example of the “rare and expensive” game with prices for loose carts having been as high as $200 with a sealed in box copy running into the quadruple digits.

 

This thing is getting higher than Cheech and Chong on a month long vacation in Denver.

This thing is getting higher than Cheech and Chong on a month long vacation in Denver.

 

Tron Bonne is another expensive game, having hit $250 loose at one point. Pricecharting, besides being a top notch reference for game prices, also offers very interesting charts showing the rise and fall of individual prices. This works well since it allows us to look at how the release of these games on digital download has affected their prices.

 

Dropping like it possesses a high temperature.

Dropping like it possesses a high temperature.

 

As these price lists are based upon North American prices, I’m using North American release dates here. Earthbound was released for the Wii U Virtual Console on July 18, 2013. I’ll ignore the July price due to the release date but interestingly the price went up the next month, only to fall the month after by over 25%. The price has made up most of its drop, but has not went back up as far as before the digital release. I honestly believe that part of the reason why this price didn’t stay down lower, is that the only console you can legally download Earthbound on is the Wii U, which has a somewhat small user base. It’s not available for the original Wii, or even the 3DS virtual console. I would argue it’d make a killing on the 3DS, but I digress.

Tron Bonne is a different story. It released on the PSN store on May 6, 2015 and the price dropped immediately. It was at just over $200 before the release, then hit $160 in June and currently can be found on eBay for under $100. This is roughly a 50% drop in price in just over a month. Following the trend we can assume the price will drop, though it may plateau. I attribute the steady drop to the fact that when you can download it from the PSN store you have multiple platforms to play it on. Buying the game from PSN gives you access on the PS3, PS4, PS Vita and possibly the PSP though I can’t confirm that last one. The sheer volume of gamers this encompasses means there is a far higher likelihood of a gamer having some way to play the digital download. This cuts down the demand by quite a margin as anyone who was interested in buying the game simply to play will likely just put down the $10 or so for the digital copy and play it how they like. Supply was increased dramatically, while demand took a huge hit and this results in the far lower prices we see today. This is how the market should work.

The problem we have is not all information is accurate, and sometimes the inaccurate information is presented very deliberately. The mind numbing amount of banal reality TV shows is, being generous, a plague, and this plague extended to the purchase of storage units. Before the appearance of shows like Storage Wars and its ilk, the purchase of abandoned units was a fairly unknown event and was mostly done to get a full storage unit of goods for a small price and resell the contents. There is nothing wrong at all with this or with the idea of a show depicting this – although frequent buyers of abandoned units have been upset with the show driving people to buy units, therefore driving up the prices. The problem exists because Storage Wars plays fast and loose with the true prices of items in a way that honestly blows my mind in its audacity. On multiple episodes the show has resorted to outright lies to make game finds seem like they are amazing when most are at the very best pretty good. Beyond the obvious fact that nobody would get an amazing find as often as these chucklenuts do, the show will outright ignore facts in favor of a better story. This wouldn’t be bad in a fictional setting, but Storage Wars likes to pretend it’s “reality” TV. It is not.

The most infamous example of Storage Wars idiocy is in 2011 when one of the stars found a NES-001 in one of the units, and declares it’s worth $13k. The best part? Here’s his quote when he finds it:

“NES-001, guys. I want you to look at this very carefully. This is the first Nintendo DS built. The last one sold with five games on the internet for $13,000.”

Beyond the fact that this dumbass doesn’t understand what a NES or DS is, he’s making either a colossal blunder about the sale he mentions or is intentionally lying about it for views. I mentioned this in my article on NES collecting, but the NES-001 is the good old “toaster” NES we all know and love. There was an eBay auction about the time of that episode that did go for that amount but what this guy ignores is the fact that it included a complete in box copy of Stadium Events, which goes for that amount by itself. This is like mentioning a Ford Pinto is worth a million dollars, because one had just sold at auction with a motor cast from solid gold. Technically, it’s the truth, but the details change the very nature of the story. To be fair, at the end of the episode an actual NES expert tells him straight up the console is only worth $10 – this was 2011 so the prices were far lower – but the NES in question doesn’t even power on so it’s worthless. Instant Karma isn’t just a John Lennon song.

 

This numbnuts again. That's still not how to tell if it's a boy or girl.

This numbnuts again. That’s still not how to tell if it’s a boy or girl.

 

The next bit that happened far more recently, and in my opinion, more obviously intentional, is when a storage unit happened to have a loose cartridge of Stadium Events in it. I won’t go into how that seems faked, but the cartridge was legit so the new owner took it to be appraised by a retro game store. They recited the current price of a US cartridge, which wouldn’t be bad except the cartridge was of the European release. Now, I know you’re thinking it was an honest mistake except for one glaring fact: The cart itself would say it was for PAL consoles. PAL is the video format that European TVs use, while American and Japanese use the NTSC-U and NTSC-J formats respectively. Someone who runs a game store should know the difference as PAL will not work in NTSC systems. Besides that, the PAL release of Stadium Events, while still rare and fairly expensive, does not have a four figure price tag. This was blatant lying to a mostly uneducated audience and it will make actual game collectors deal with the effects.

You might be asking why this matters so much, and that’s a very valid question. The problem is that while a lot of people will buy retro games looking for a high value piece, most of them are not collectors. Collectors will certainly be looking for rare games as well, but we’re not that worried about how much we can sell it for as bragging rights. The demand for retro games has shot through the roof already, but incorrect info like that which Storage Wars dumped on us, makes actual prices go up because more people who happen to have a dusty old cart demand higher prices because they think it’s what it’s worth. Mostly it’s not.

The problem occurs here because by willfully introducing incorrect information into the market, prices are skewed by people who don’t know that the information is incorrect. The majority of people who give a crap what Storage Wars says are not game collectors, nor do they want to put forth the effort to Google actual prices of games. These are the idiots who wander around flea markets and thrift stores declaring any game is old and therefore expensive. It’s interesting that even when the information received is wrong, the reaction to it follows the standard laws of economics. The information is right until the market corrects itself. The laws of supply and demand act just the same whether you are reacting to correct or incorrect information.

 

But a US President wouldn't push through legislation or war based upon faulty info, would they? Substitute Dubya for Obama if you'd prefer.

But a US President wouldn’t push through legislation or war based upon faulty info, would they? Substitute Dubya for Obama if you’d prefer.

 

I honestly blame the rise of such false information in large part for the massive hike in the prices of retro games. More and more people are getting into buying games just for monetary gain much like comic book collectors dealt with in the 1990’s. Too many people saw the sale of legitimately rare comics make large sums of money so they bought everything comic related for a period of time. During this period every other comic released was a “collector’s edition,” eventually, the prices collapsed as the market corrected for the fact that the supply of “rare” comics was gigantic. Now comics aren’t worth that much at all, which I believe makes people who actually enjoy collecting them happier. This boom/bust cycle is an integral part in the discussion of both Keynesian and Austrian economics, but that’s another article.

The fact that incorrect information exists means that prices will sometimes not reflect what they should be, but the beauty of the pricing system is that it adjusts multiple times a second. Prices are a rapid indicator of trends, supply curves and every other bit of information, all cultivated and managed by everyone who takes part in a market. No one entity makes prices happen, we do. Whenever a price is artificially set it always ruins the supply curve, but when prices are able to happen organically we get an instantaneous system of value that is constantly updated and adjusted.  Prices represent the collective responses of millions of consumers, who by our actions, determine what the market says an item or service is worth. It’s the ultimate form of voluntary democracy: you only have to be part of it if you so choose, and only the actions of the consumers matter. Prices act as both a control and impetus in the market; prices that are too high cause a lack of demand cutting prices, while prices that are too low cause an increase in demand making them rise. It’s a built-in control system that’s not only completely democratic, but also voluntary. It’s one of the greatest mechanisms of liberty, and we all too often overlook just how important it is.

As always in these articles, I don’t exactly try to outright convince you to get in line with my outlook, but I do want to make you think. If you have any comments, questions or et cetera, feel free to say hi on twitter where I’m @ithinkibrokeit. Thanks for reading.