I learnt that if the service provided is of non-rival and non-excludable in nature, the problem of free riding occurs and the provider may not get a profit. I can understand how non-excludability results in free riding but I couldn't uderstand the effect of
non-rivalry. In the book I read, street performance was cited as an example for non-rival and non-excludable service. The following is an excerpt from the book 'Day to day economics' by Satish Y. Deodhar

at a given market price, the relative buying power of different consumers might exclude some of them from buying the car or the toothpaste. In the case of the street-performing couple, this ‘excludability’ feature is missing, because they cannot prevent individuals—either physically or by charging an appropriate price—from viewing the performance. Thus, due to the non-rivalry and the non-excludability of the service which they provide, the problem of free riding occurs, and the market fails to deliver—ergo, the street performers cannot run a profitable business.

Is there any service that is rival and non-excludable? If so, how is it different from the previous case with regard to free riding?

  • $\begingroup$ Strictly speaking, non-excludability is rarely the case in reality - you can exclude anything from anyone. Sometimes it is just not really feasible. Consider an apple tree in a public park. It very hard to exclude people from picking an apple (not excludable), but the apple that I eat cannot be eaten by you (rival). $\endgroup$ – Bayesian Jun 1 at 12:12
  • $\begingroup$ @Bayesian Thank you for answering.So if I want to sell a rival and non-excluding product then I should not fix a price for it i.e. selling apple for any price the customer feels like paying(even zero bucks).Then even in this case free riding is possible if the customer chooses to pay zero price. Thus rivalry cannot stop free riding(has no impact at all with regard to free riding).Is this right? $\endgroup$ – Mohan Jun 1 at 12:29
  • $\begingroup$ In some sense, rivalary exacerbates the problem of free riding, see for instance the "tragedy of the commons". $\endgroup$ – Bayesian Jun 1 at 12:52

To continue the example of the street performer:

Suppose there are two people offering the performer money, but in exchange they want her to perform different songs. Person A prefers song A while person B prefers song B. Whoever offers the higher sum gets their wish. In this case there is rivalry between the consumers. Yet there is also non-excludability: Even if someone loses the bidding war, they can listen to the song chosen by the other person.

Note that the rivalry results in higher profits than if both people preferred song A played, because then they would have had no incentive to bid against each other due to non-excludability.

  • $\begingroup$ Thank you for answering. So rivalry can not curb free riding, only excludability can stop free riding.Is this right? And is it possible to sell a product(not a service) that is rival and non-excludable? $\endgroup$ – Mohan Jun 1 at 12:56
  • $\begingroup$ Oops, sorry, my first response was incorrect. I believe that the example in my answer shows that you can sell a rival and non-excludable service (song A vs. song B). Please post new questions as new questions. $\endgroup$ – Giskard Jun 1 at 13:04

Putting my comment into a short answer, rivalry can in some sense exacerbate the problem of free riding. In a free-riding problem, it is not possible to exclude non-payers from consumption, which results in overconsumption and underprovision of the good. This is a issue for public goods, which are non-excludable and non-rival. It is even more of an issue, in the tragedy of the commons. For instance, fish in the sea are hard to exclude, but they are rival: I cannot catch a fish that you already caught. Overconsumption leads to even bigger problems with such goods, because the consumption of an unexcludable non-payer comes with a negative externality.

  • $\begingroup$ "fish in the sea are hard to exclude" Huh? $\endgroup$ – Giskard Jun 1 at 13:01
  • $\begingroup$ Also, please read my comment under this question. $\endgroup$ – Giskard Jun 1 at 13:02
  • $\begingroup$ I think overfishing is a classic example for a tragedy of the commons problem, and fish are a classic example of common-pool resources (non-excludable and rival). In that sense, what is your issue? I do not like "non-excludable", because essentially every good is excludable (however some only at unfeasibly high cost) $\endgroup$ – Bayesian Jun 1 at 13:12
  • $\begingroup$ Perhaps I am unfamiliar with the English grammar. I thought you exclude consumers or firms, not goods? $\endgroup$ – Giskard Jun 1 at 13:58
  • $\begingroup$ I guess you are right, but I suppose it is clear what I mean. In general, if y is x-able and x is a verb, it means that someone is able to x y. $\endgroup$ – Bayesian Jun 1 at 14:22

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