The competition for used video games is heating up as the world's largest retailer enters the arena starting next week. Wal-Mart said Tuesday it would allow consumers to come into its stores, at 3,100 locations, and trade-in used video games for an eGift card for use on any item sold in Wal-Mart and Sam's Club stores and online. Later this year, Wal-Mart will resell the pre-owned games in-store and online, after the games have been refurbished by CE Exchange. Wal-Mart currently works with CE Exchange on its smartphone and tablet trade-in programs.

Word of the new program sparked a selloff of GameStop shares, which tumbled 4 percent, as investors worried about the impact on the video game retailer. GameStop is largest retailer of new and used video games, with two-thirds of its product offering used games. Pre-owned games are significant margin boosters for the gaming retailer, accounting for about half of its gross profit.



A customer browses video games for sale. Patrick T. Fallon | Bloomberg | Getty Images

Wal-Mart's success in the used video-game market remains to be seen, but its entry is significant. "For all the concern there's been about the used video-game model as digital and online video games take share, Wal-Mart getting in validates the business model," said Oppenheimer retail analyst Brian Nagel.

"We aren't participating in the $2 billion used gaming opportunity at all right now," said Duncan Mac Naughton, chief merchandising and marketing officer for Walmart U.S., during a conference call with reporters that announced the news.

According to NPD, video-game sales fell 17 percent during the most recent holiday season. However, despite the decline, Wal-Mart said it still expects there was an inflection point in gaming with the new hardware that came out last fall, Mac Naughton said. (Read more: )

No doubt, Wal-Mart likely hopes the program will generate foot traffic, or help it capture a larger share of new-release game sales as those trade-in dollars are turned into sales.

But some observers said the bigger question may be the program's possible impact on competitors like GameStop, Best Buy, Amazon, eBay and others that currently offer trade-in programs. That's because the business can be lucrative. While the industry saw video-game sales fall over the holiday season, GameStop reported a 7 percent increase in used game sales for the period. If the new video game trade-in program follows the example of Wal-Mart's current electronic trade-in programs, the value of the video game will be as competitive as the market allows.

(Read more: Wal-Mart ups the ante on its big bet to go small)

