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You need to consider that Steam needs to pay the publishers at some point, if they followed that rule that you suggested they would need to sometimes wait years to pay a publisher, which makes it bad for publishers. I believe that 14 days is way too short, and they could easily do 30 days, but at some point they need to send that money to the publisher and at that point refunds are dangerous things. For example, imagine they allowed this and one company released a game which was very cheap with lots of promises, so lots of people buy it, eventually they abandon development so lots of people refund it, and no new sales will come for it, so any refund is a loss for Valve. Also credit cards also have some similar rules and problems, what if the card you bought the game is no longer valid?. This is why Valve needs some rules on time limit to protect themselves from those situations.
All of that being said, the time should be longer, and if it's an active game that will give them more sells in the future that they can take the money from they should (and usually do) allow refunds over that time limit. It's strange that yours was denied, I've refunded games over a month after purchasing for similar reasons, they did let me know of the policy but proceeded with the refund regardless.
I can get faulty physical goods fixed/refunded by the store up to 2 years after purchase (EU). It's the store's problem to get a refund from the manufacturer. The same should be true in case of Valve and a publisher.
Agree, I'm just explaining the reasoning behind it, that's part of the risks of running a store. That being said even here in the EU you can't get a full refund months after the purchase for a working product, which is what we're talking about here so your example is not oranges to oranges.
In the EU you're definitelly entitled to a full refund if a product does not work as advertised - in English the magic words are "not suitable for purposed" - or if it doesn't work at all, and there are no or very extended time limits on that (if I'm not mistaken for the "not fit for purpose" cases there are no time limits at all, whilst as pointed out by a previous poster it's 2 years for non-working products)
However there are carveouts specifically for "digital goods" in those regulations in the EU thanks to lots of lobbying ($$$) by industries in Copyright-heavy areas. No idea if Valve or Steam were amongst the ones participating in that lobbying effort or not.
So if you buy an egg-beater online and it doesn't actually work as an egg-beater, you're entitled to a refund with no matter when you find out it doesn't actually do what it says on the box, but if you buy a game and it doesn't actually work as a game, you're shit out of luck.
There are differences of course. Still, Steam's policy, which is often internationally praised as consumer friendly, is very restrictive from a European perspective.