> "given that in the absence of a used game market games can be rapidly price slashed"
This is a common raised point - but there's no evidence that this will actually happen. Valve has certainly done this, but Valve is also an extremely atypical company in their industry.
We have seen, for example, with existing digital purchase games (on PS3, 360, and PC) that games cost the same as their retail counterparts. The "no resale" model exists, and with the except of Steam, the lower prices thing has never materialized. This is true across all platforms - on PS3, on 360, on Origin, etc.
What Microsoft tabled was a lot of what ifs that had almost no chance of actually panning out. With the death of used games publishers could charge less, but neither logic nor industry trends bear that out.
The value proposition was a giant (unlikely) hypothetical vs. a cold reality of killing used games.
Steam games launch as expensive as the retail counterparts because big chain stores like Gamestop Target and Walmart refuse to stock it if its launched digitally for less money. Also, there is no reason not to launch a digital product at an extremely high price point, because if you can get someone to buy it at $100 that is just $99.9 in profit.
If you are selling the game in stores, you have to pay for polycarbonate disks, the plastic packaging, shipping, stocking, store fees, you have to play international politics wherever you are selling it, you have to put up some advertising on site for the game, and that all does cost an actual sizable amount of money per copy compared to just having an FTP server grid pushing out copies of the game to people that clicked a button.
If the console market went pure digital, their per-unit costs would go to $0, so they could sell their games at whatever price they'd want, and fluctuate the price however they want. The shelf price can't change much besides slow discounts over a stock time and most games go off the shelves before they'd see any real discount. Online, a publisher can flick a switch across all distribution channels on what to sell the game for (assuming steam / gog / etc lets them) and have a new price overnight.
No, you can't assume a publisher would ever cut the cost of the game, but these people are in the business to make money and surely someone in each of these companies understands that to profit maximize they sell early for a lot and drop the price over time to get the most money out of the most people.
The only curveball in digital distribution to contend with is that you are always competing with free, because thanks to bittorrent someone else is always willing to send you the huge multi-gigabyte number of the game and pay the electric bill to transmit it. That naturally drives prices to $0, or in Steams case around $2 - $3 even for huge titles from 5 years ago.