Amazon.com introduces service for used video games

Amazon.com Inc., the world's largest Internet retailer, introduced a service that lets customers trade in old computer games and receive a gift card, an effort to step up competition with GameStop Corp.

The announcement sent the shares of GameStop down 14 percent on concern that Amazon.com would eat into its market share. GameStop is the biggest retailer of video games, with more than 6,000 stores in 17 countries.

The new service, available now, is still in the testing phase, Seattle-based Amazon.com said on its Web site. The move could put pressure on GameStop's prices, said Lazard Capital Markets LLC analyst Colin Sebastian. GameStop makes about a quarter of its revenue from used video games.

"It will help keep GameStop honest in terms of the value they are offering for the games," Sebastian said in an interview. The San Francisco-based analyst recommends buying GameStop shares.

GameStop fell $3.84 to $23.46 today in New York Stock Exchange composite trading. Amazon.com fell 4 cents to $64.77 on the Nasdaq Stock Market.

Chris Olivera, a spokesman at Grapevine, Texas-based GameStop, didn't respond to a request for comment.

Benjamin Schachter, an analyst at UBS AG, said investors may have overreacted to today's announcement. While GameStop customers can trade in games at stores, Amazon.com's program is only online.

"We see several disadvantages to the online-only model and believe it's way too early for it to have a meaningful impact to GameStop," Schachter said in a note. He recommends buying GameStop shares.