So many problems here...
Consumers demand more substance from the newest games, but aren't willing to pay more for the base product.
Substance is not what we're getting from all of that extra money being spent. What we're getting is "cinematic" gameplay, which is the reliance on scripted sequences, voice acting, motion capture, and constant cutscenes over substantive mechanics and gameplay.
Baldur's Gate had more substance than a dozen Call of Dutys and cost far, far less to make.
For example, it's assumed that when you buy a brand new car, you will be able to recoup some of that money later when you sell it used, unless you're the type to buy a new car and then drive it until it melts into a pile of rusty goo. Because of that understanding, the dealership is able to charge you more without ripping you off. Well, they probably still rip you off, but you get what I mean. A used game is an asset the same as a used car.
Car dealerships aren't charging people any extra because of the car's resale value. Prices in a competitive market are driven lower until the point where the profits being made by the competitors is no longer enticing enough to bring new competitors to the market, and where the existing competitors start valuing profit margins per sale over trying to grab more market share.
So think about it this way: If you didn't care about keeping a collection and had the spare time, you could easily play brand new games for a fraction of the cost. Buy it new for $60, sell it used for $30 in a couple weeks. Even Gamestop will pay you that much, or more, soon after release, and they once offered me a quarter for the one sports game I ever bought. As the "new" price of the game goes down, so does the proportional "used" price, because the used amount is always included in the price. There's an assumed value that's getting tacked on.
Again, that's not how pricing works at all. Publishers seek to place themselves on the most advantageous spot on the demand curve, where the increased margin for raising the price no longer offsets the decreased number of sales, and the increased number of sales would no longer offset the decrease in margins for lowering the price. How used game sales interact with that demand curve is far more complex than you seem to understand.
Having used copies for sale puts new copies into competition with them. The higher the industry prices its games, the more likely people are to go for used for a discount, and the more likely they are to re-sell them in order to recoup costs. People who are willing to pay $60 for a game but who buy used because they value the extra $5 they save over having a new copy would be forced to buy new if used game sales went away.
Meanwhile, used games existing isn't holding publishers back from lowering prices to try to increase volume. Used game sales are limited by two things- availability of used copies, and people's desire to simply have a new copy. Reducing new prices would decrease used prices, therefore allowing people who weren't buying at the higher price to absorb the stock of used games. People who buy new would but didn't want to buy at the higher price will now buy at the lower price.
Used games affect the publisher's current chosen spot on the demand curve in both negative and positive ways. You can't just subtract the resale value from the price of a new game, call it the new spot on the curve, and have any idea what you're talking about.
So we have no more used games, and the prices go down. What if we go all digital? Well, we can look at the PC market to see that this has already resulted in huge price cuts. Without boxes and shipping, publishers have the freedom to cut out a lot of the middleman costs and provide the savings to you. Obviously, Steam represents the epitome of the "I'll just buy this because it's so cheap, even though I'll never play it" style of marketing. But we are starting to see the fruition of new download services like Gamefly and Origin, whose competition will further reduce prices. Since you can't really resell digital games, the resale value is also eliminated from the price
Low prices on Steam are the result of something called "Price Discrimination". Publishers want to sell each copy of their game for the highest price that each buyer is willing to pay. Since they can't read minds, they resort to lowering prices as the game gets older. People who really wanted the game buy when the game is released, since they're willing to pay $60. People who don't care much about the game wait until it's $5 on Steam. There's a good reason they're not starting off at $5- they'd be leaving too much money on the table, and wouldn't be making enough revenue to keep the lights on.
The important thing here is that there's nothing stopping digital versions from being sold for $5 while boxed copies are still on the shelf selling for $30. Retail can only go so low, but its existence -along with the existence of used games that come along with it- aren't holding back publishers from going to those prices for digital. In fact, they make it easier- since some people value box copies, it's a perfect discriminator to get some people to pay $30 for a game while others are only paying $5.
Eliminating boxed copies would only hamper publishers' ability to engage in price discrimination, therefore lessening the chance you'll see a game for sale for $5 on Steam nearly as fast.
