system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: How can Steam afford to sell games at such high discounts?

I worked in retain for five years and understand how little mark up there was on video games (10-15%). I also understand the concept of vendor funding, where a company would reimburse the retailer during a sale. But I can't see how steam can afford to sell so many games when, I assume, they're buying copies for more than what they're selling them for.
gpt
In physical stores, you have a limited supply of a physical game.  It cost money for the developers to make it, and it also cost money to make the disk, make the case, make the box, and ship it.  That physical game has costs that MUST be made back.

With Steam, you have an unlimited supply of a digital item.  Besides server storage and network bandwidth, there is practically no cost is distributing a digital game.  Any money made does straight to the developers (after Valve's cut).  

This means Steam and the Devs can play around with prices, as no matter what is sold, it's profit.  For example, say you have a game priced at $60.  During your average week (way after release), only 10 copies are sold (resulting in $600 profit).  If they decide to discount that down to $5, people jump on it and 2,000 digital copies are sold (making $10,000).  Because there is an infinite supply of the games, they don't have to worry about running out and can easily distribute 2,000 copies.