GameStop Whacked; Amazon Enters Used Game Business

GameStop (GME) shares are getting clobbered today on news that Amazon.com (AMZN) is getting into the business of buying and selling used video games–and so is Toys ’R Us.

Credit Suisse analyst Gary Balter explained in a research note today that one reason he has maintained an Outperform rating on GME shares is that the company has dominated the used videogame business; he notes that used games generate 44 percent of the retailer’s gross profits, nearly twice the segment’s sales contribution to the company. Over the last several days, he reports, there have been two attacks on the company’s near monopoly in used games.

On Tuesday, Forbes reported that Toys ’R Us has a pilot program to test the sale of used games in some of its U.S. stores; Forbes noted that the program was first reported in the user forums of a Web site called cheapassgamer.com. Other retailers, including Best Buy (BBY) and Blockbuster (BBI), have previously experimented in the segment, but haven’t made much of a dent.

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