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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 video game business; he notes that used games generate 44% 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.

More worrisome for the industry, though, is the entry of Amazon into the business. UBS analyst Benjamin Schachter notes today that select games in good condition can be shipped to Amazon for free, with trade-in value deposited into the customer's account. Anyone who trades in games prior to March 19 will get 10% off a game or accessory purchase through Amazon. Balter notes that Amazon seems to be offering to pay about 10% more for used games than GameStop pays.

Amazon is offering to buy your copy of Tiger Woods PGA Tour '09 for Playstation 3 for $20. All done with Metroid Prime 3: Corruption for the Wii? Amazon will give you $10.50 for it. Finshed up Gears of War for the Xbox 360? Amazon will pay you $7 for it.

Balter thinks the market may be over-reacting here; he says Amazon's move shouldn't have a big impact on earnings near term. Longer-term, he thinks downloadable games are a bigger threat. "While there is no doubt that the Amazon news is disconcerting and shakes some of the eroding confidence in the story, the stock at $23 seems to discount that already," he says, "and given the earnings power we still see a trade to the low $30s."

GME today is down $4.07, or 14.9%, to $23.23.

I'd note that this isn't necessarily great news for the video game publishers, either; they now get to compete on Amazon against used versions of their own games.