Economics Terms A-Z
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There are many different ways that economists classify the different types of goods and services sold in the economy. The characteristics of goods – for instance, whether they are rivalrous or excludable – help economists classify goods into one of four categories. These are club goods, private goods, public goods, and common resources.
Club goods in economics are a type of good that is excludable, but non-rivalrous. This means that although using a club good doesn’t prevent others from enjoying it, and doesn’t reduce the amount available for others, it is possible to stop people from using the good in the first place. For this reason, club goods might occasionally be referred to as non-rival private goods.
A classic example of a club good is membership in an exclusive organization such as a golf club or a gym. In this case, purchasing a membership doesn’t reduce the amount of memberships available for others, nor does using your membership reduce others’ ability to use their memberships.
Astute students will notice that more specific parts of the club – for example, the golf course or specific gym equipment – might suffer if too many members try to use it at the same time, since the amount of space is limited. This problem is sometimes referred to as a congestion problem, since realistically there cannot be infinite users of the membership space.
However, there could theoretically be infinite members, as the membership itself is not made more scarce when people sign up. So, economists would still classify a gym or golf club membership (and similar types of goods) as club goods.
Another example of a club good that doesn’t suffer a congestion problem is a streaming service subscription. When you subscribe to a streaming service, you pay for access to a number of movies, TV shows, etc. Before you can access these goods, you must pay for the service, making the subscription excludable.
Utilizing the service does not cause anyone else to enjoy the movies or shows on it less, nor does it cause fewer movies to be available to others, so the streaming service is also non-rival. Finally, using the service doesn’t crowd other people out of enjoying the movie as with a piece of gym equipment, so in this case this club good does not suffer a congestion problem.
Good to Know
Club goods that are deemed necessary for society are often provided via regulated natural monopolies. For example, electric utilities provide a very important service since power is necessary for many of the modern luxuries in our economies. But, high setup costs and relatively low costs of undercutting potential new entrants means it’s likely that a natural monopoly will form in the market.
For example, setting up a power generator and electrical infrastructure to move that power into businesses and homes takes a lot of investment. And, once such a system is in place, it’s quite difficult for a new entrant to drum up enough initial investment to compete with the incumbent firm.
This creates a natural monopoly situation where the incumbent firm can charge high prices, crowding out some end users of electricity. But, adding new users onto an existing electrical grid is relatively easy and cheap compared to making new electrical infrastructure, so the company can easily grow. These market characteristics – high start-up costs before any product or service can be sold, but relatively low cost of adding new users – tend to allow club goods to thrive.
Unfortunately, monopolies (and in this case, even a perfectly competitive market) would under-provide electricity. In this type of situation, usually the government will step in to ensure incentives are properly aligned so that electricity is provided to everyone – typically involving the creation of a subsidy.
- Economics Terms A-Z