The Network Effect And Nintendo Games

Around the mid nineties, just about all gamers had switched from the old 8-bit video game systems like the Nintendo Entertainment System to the next generation of 128-bit video game systems like Playstation.  Because these new games were far more complex and had better graphics, it left a whole lot of Nintendo games stuffed in attics collecting dust.  I decided that I wanted these games.

While I loved playing the new video games, I also loved hooking up the old  Nintendo and playing some of my favorites that were not just good, but gave me a feeling of nostalgia.  I also liked paying low prices for hours of entertainment.  Around this time of 2-3 generations post Nintendo, you could often find games at thrift stores, yard sales, or even at used video game stores for a very low price.  I became a collector and built my collection based on a limited market of information sharing.

The Negative Network Effect

In the case of Nintendo games, I would claim there exists a negative network effect.  The more people that belong to the community of buyers and sellers, the more stable prices become, and the more informed buyers and sellers become.  This is negative for buyers like me because it sets a more fixed price for an item that with less people in the “network” could have been attained at a much lower price.  This is also a negative for sellers who used to overcharge people for games.

The Positive Network Effect

This is a positive for people who have games to sell as they can now get fair value.  It is also a positive for uninformed buyers who were willing to pay "nostalgia" prices instead of market prices.  To understand how this works I will explain how the prices of Nintendo games were established.

Funcoland

Funcoland was a used video game store (that is now basically GameStop).  They allowed people to trade in Nintendo games for other games, mostly in 2 for 1 or other uneven trades.  This way they developed a huge inventory, at a cost of nothing.  The prices I’m assuming were determined by a market value based on popularity of the game.  However as the store started to fill up with the newer generations of games, the Nintendo pricing system became more based on Scarcity, with games as low as 50 cents (Super Mario) and as high as $60 (Dragon Warrior IV)

In order to find out the value of a game from Funcoland you could either call them up and ask them about each and every game, which was a pain for both parties, or you could go to the store and pick up a monthly newsletter which listed prices of every game.  By creating this chain pricing, Funcoland effectively set up a market value for Nintendo games.  However, due to the difficult nature of finding the pricing, especially for people unaware of the few locations of the store, this hard to come by market value was not very effective and could be leveraged to “trick” people into selling games for a lower price, or to obtain games for below market value.

Thrift Stores, Yard Sales, Uninformed Friends, And Mean Mothers

The best way to get Nintendo games for well below the market value was through buying them from uninformed sellers, or getting them for free from people who thought they were “old toys”.  Many thrift stores would sell any game in a grey cartridge for the same price.  If you brought your Funcoland price paper to the thrift store, you could get the expensive games for cheap and avoid buying the games that you could get at Funcoland for a low price.

Another great way I acquired Nintendo games was by making trades with friends, or getting them from people’s mothers who were selling at yard sales or giving them all away.  This was a great way to get games with no money.  And since friends and parents didn't have access to the Internet and had no interest in driving to a store, I always benefited.

Beating The System, The Flaw With No Network
I once stumbled upon a used book store that randomly had a whole bookshelf filled with Nintendo games.  I think in the 80’s this was a good business for them, having people trade in 2 games for 1 game.  This was probably effective when most games were newer and similar prices.  However, when the values became based on scarcity, I figured out how to beat the system.

I would go to Funcoland, and purchase some of the games that were under a dollar.  I would then bring the pricing sheet to the bookstore, and trade in two 75 cent games for a game that was sold at Funcoland for $10 or more.  Pretty soon the bookstore’s collection valued at over $100 was now about $10.  Is that unethical?  I don’t care, I get to play Mega Man 6 whenever I want.

The Internet Causes The Negative Network Effect

As time went on the Internet came on to the scene, and each day more people entered the network of Nintendo game sellers.   Funcoland moved online, the pricing was now available (although many people didn’t know about it) and the network grew.  Then came the bombshell, eBay.  eBay combined peoples knowledge of Funcoland and created a more accessible and well known market for all used goods.   By now, most thrift stores use eBay to estimate prices of things, and along with the amount of time passed since the system came out over 20 years ago it is really hard to find any good deal.

Conclusion

Hopefully if you read this you didn't have any random Nintendo games lying around the house waiting to be thrown away, and you still want to give them to me for free.  And the real conclusion is that network effects do not always turn out positive for all members involved.  However it could have negative AND positive effects depending on who you are in the network.