I was thinking you were selling on eBay. If you have a brick and mortar store and selling video games then I think what your doing now is more than fair. I personally would not offer a refund on a opened video game at all simply because of what you said. They can buy the game, go home and play it and bring it back when their done or if they don't like it. If the game had never been opened or played then I would do a refund or exchange. I feel there needs to be some type of refund on the consoles because they are expensive and there can be incidents where they just don't work or break when the customer gets them home. That would be a sure way to loose a customer by sticking them with a $400 broken game console.
I agree. You should try the Refund Policy that GameStop has and it seems to work for them, a Game cannot be returned if its opened .Period. If it is, it can only be exchanged with in store credit for another game within one week.
You can try to offer squaretrade extended warranty. That way, you can earn commissions everytime your customer buy warranty through them. For more info, visit squaretrade.com
I have sold LCD TV's and other electronics offline (Craigslist - you got to love local buyers because no fees whatsoever) and I just tell them to visit squaretrade.com to buy extended warranties. That way, your customers have the ease just in case the product fails in months where they are not covered with your return policy anymore. Even if you're not an authorized dealer for such company, squaretrade will take care of the repairs.