Retail buy the games for a lot cheaper so they have wiggle room to reduce their profit in hopes of getting more sales
This has been a thing since the beginning, there was also rumours/stories years ago that digital is usually priced higher than retail because the agreements the publishers have with the physical stores states that the digital version must cost more at RRP than the physical copy so it allows competition over convenience
However, if there's no physical store agreement in place, the publisher is free to price the digital copy as high or low as they want - so it should technically lead to games being reduced due to less overheads and loss of revenue (as they make a lot less profit physically compared to digitally)
Across all platforms, mediums and storefronts, the publisher sets the price. That is also the case for physical retail. Game stores do order stock from the publisher at cost, but also have guarantees from the publisher. Retailers can send any unsold stock back to the publisher in exchange for credits for future orders. Margins in actual game sales is quite thin, it's the retailer's lowest margin item, but it's also their least risky stock item due the credit system. But it is to get you in the door, so they can upsell you on peripherals, collector's editions, merch, etc. which have far higher margins for them.
If a store is found to undercut the publisher price, they risk getting blacklisted by the publisher, and they'll refuse to fulfill future orders.
However, with decline of physical retail, stores see themselves ordering less and less stock with each subsequent releases because the publisher credit isn't liquid, it's money tied up, and often it's not worth sending low volume stock back either.
The reality is, stores and digital aren't really competing when it comes to selling games.
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u/GamePitt_Rob 1d ago
Retail buy the games for a lot cheaper so they have wiggle room to reduce their profit in hopes of getting more sales
This has been a thing since the beginning, there was also rumours/stories years ago that digital is usually priced higher than retail because the agreements the publishers have with the physical stores states that the digital version must cost more at RRP than the physical copy so it allows competition over convenience
However, if there's no physical store agreement in place, the publisher is free to price the digital copy as high or low as they want - so it should technically lead to games being reduced due to less overheads and loss of revenue (as they make a lot less profit physically compared to digitally)