As the game industry manages the awkward transition from a focus on retail distribution to a focus on purely downloadable titles, Sony seems to have come up with an interesting compromise position for its new handheld, Vita. The company has promised that any retail game for the system will also be available for download from the PlayStation Store, and usually at a price roughly ten percent less than the suggested retail price. (Titles like EA's FIFA Soccer, Sega's Virtua Tennis 4 and Ultimate Marvel vs. Capcom 3 are currently showing up at the same price for download or retail purchase, however.)

At first glance, this seems like a great way to gently encourage players to purchase from Sony's online store, a boon for publishers that often hate to see their games resold on the secondhand market. But that encouragement is based on a price advantage that might be hard to maintain over real-world brick-and-mortar stores in the long run.

British bargains

Take a look at the situation in England. British price tracking site Savygamer took a look at the best available retail prices for the Vita's launch lineup, and found that they ran about 17 percent less than the "discounted" PSN prices for those same games. Sometimes the retail price advantage was just a few pennies, but an intrepid British shopper could save over £10 (almost $16) on titles like Virtua Tennis 4, Shinobido 2, or F1 2011 by shopping around at retail rather than downloading.

That specific situation might be somewhat unique to Britain, where heavy retail competition often drives game prices well below the suggested level at or even before launch. Yet there are Vita retail deals to be had in the US as well. Toys "R" Us is already selling new copies of Uncharted: Golden Abyss for $40, undercutting the $45 downloadable version. Less-reputable sellers have better-than-download prices on titles like Lumines: Electronic Symphony and Shinobido 2, complete with free shipping. And for those willing to buy in bulk, Amazon is offering a buy-two-get-one-free deal on a large selection from the Vita launch lineup.

Hidden costs and bargain bins

Don't forget, too, that if you want to download Vita games you have to purchase one of Sony's costly, proprietary Vita memory cards, which cost up to $100 for a 32GB card (per-gigabyte prices are even more expensive for smaller cards). For a 3.2GB download like Golden Abyss, that translates to a hidden cost of about $10 spent on permanent digital storage (of course, unsentimental gamers could probably get by with a smaller memory card, deleting and re-downloading digital games as necessary).

And this is just how things stand before the Vita officially launches tomorrow (preorders went out starting last week). After launch, the retail Vita software market will likely be flooded with cheaper used copies, as well as bargain-bin clearances for less-popular titles. A downloadable version that sells for ten percent less than MSRP will find it hard to compete with a retail copy that has had its price slashed by 50 percent just one month after release. Plus, that retail copy retains some value if you decide to trade it in once you're done, which isn't even an option for a downloadable title.

Staying competitive

The question, then, is whether Sony and game publishers will allow downloadable Vita game prices to fluctuate in order to keep pace with their retail competition. The pricing history for retail PS3 games that are also available on the PlayStation Store isn't encouraging in this regard. While you can currently download older PS3 titles like Grand Theft Auto IV and Tom Clancy's Splinter Cell: Double Agent for a relatively competitive $20, games released in the last 12 months are often much more expensive to download than to buy new on disc.

The PlayStation Store is charging $60 for last May's Motorstorm: Apocalypse, for instance, while Amazon has the game disc for a cool $36.79. August's Madden NFL 12 will also run you $60 on the PlayStation Store, but only $43 on Amazon. The PS3 version of March's Crysis 2 costs $40 on PSN, but less than $20 from online retailers. Sure, you don't have to leave the couch to grab these downloadable options, but how much is that convenience really worth? (I should note here that downloadable Vita games are always ready to play without the need to futz with a stack of game cards, a decent selling point in favor of the PlayStation Store versions).

One of the major advantages digital distribution has over retail is the ability to fine tune prices to precisely suit demand for a title. With almost no marginal cost to selling an additional downloadable copy, companies can maximize profits by quickly lowering the price to an equilibrium that attracts the largest amount of revenue from the potential audience.

You see this phenomenon on the iOS App Store, where a "race to the bottom" effect has led to success for many cheap, high-quality titles, and on Steam, where frequent sales and classic bundle deals fill up many a download queue. Sony should follow the leads of these services if it wants its PlayStation Store to truly be a competitive alternative to its own retail titles.