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One can be cute and say, "Well it is legal because that is how the courts rules". Yes, it would be cute, but sometimes that is all you have on. Depending on where you are in the world, you get different rulings (Some countries forbid rental and resell of used games) So, I feel it would be good to rephrase this question as:
Why SHOULD renting games be legal? PC software isn't legal to rent (piracy concerns won them they day), why should console games be?

Well, I will list several factors in this and then see where the chips fall:
1. Libraries let people BORROW books for free. Should this be legal? Some libraries even lend out movies to for free. I believe some even do it with videogames. Should people who own a game, have a right to let others use it as they decide?
2. If one has a right to a license for intellectual properties to be able to let others use what they own, then is one permitted to make a business of letting others access your license for use. In other words, can you RENT your games out to other people, so you can make a living and buy more games?
3. If you own a game, should you have the right to be able to sell your game away? Is someone able to make a business out of doing such?
4. Licenses in America are normally set up as a per user/machine use on the software side. It is intended to restrict it so you sell more. So, with this as a case, my take is that if you sell your game off, you no longer can use it. And when it comes to game rental, only so many people can have access to a game at a time. The number of users is locked in to a certain number, so it doesn't go all over. Observe how Netflix works in regards to this. You can't stream everything.
5. The rental business guarantees a certain number of sales. A key to games is that you PLAY them. A game considered worth owning should provide great game experiences for people, and very likely replay value. Before videogames, games were considered something you played with other people, and said to have replay value. You would keep playing chess. The likes of Scrabble and Monopoly would be the same. If a game had this replay value, then it was considered a good game.
6. Games now are disk based. They have wear and tear on them, and who knows what else you rent now. The game may or may not work. There are reasons to want to buy new instead of used, and play them.
7. When you are able to trade in games, you then have more money to be able to get new games. So your old game purchases fund the acquisition of new games.
8. Arcades used to act like movie theaters and be proving grounds for the home market. These have gone away. We now have rental markets that have replace them, to some extent.
9. Should people have a right to try before they buy? If so, in what context should they be allowed to do so?
10. The industry has apparently adjusted to the changes that have happened, going to downloadable content, and deluxe editions, and the use of preorders.

These are some of the angles. I will let others mention other angles on this. And I will let others decide and debate what I wrote here.