"The used game business is not as lucrative as some people may think."
According to GameStop's latest quarterly financial results, the used game business accounts for 47.5% of their profits. That's pretty lucrative.
http://www.kotaku.com.au/2010/11/why-gamestop-wants-your-used-games-so-bad/EDIT: The GameTraders near me [probably the best game-specific retailer we have in Australia, and the only major one which deals with retro games and systems, right back to the Atari VCS (2600) Although having said that, a good retailer here is still, on average, double the price that you can pay importing games from the UK or US, even if you include postage] checks consoles when you trade them in, but not games as it would just take too long.
But they do give you the option of testing any games before you purchase them, and I've seen them offer full refund or exchange to another customer who brought a Dreamcast game that didn't work. They are a franchise though, not a chain, so that might just be how this particularly manager does things.
For all new purchases, of games and everything else not game related, Australian law ensures right of refund if goods are DOA, and also a minimum manufacturer's warranty of 12 months. Not sure if this, or any other laws, cover used/second-hand purchases from stores though.