Rivalry (economics)

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Wild fish stocks are a rivalrous good, as the amount of fish caught by one boat reduces the number of fish available to be caught by others. Fish0192 - Flickr - NOAA Photo Library.jpg
Wild fish stocks are a rivalrous good, as the amount of fish caught by one boat reduces the number of fish available to be caught by others.

In economics, a good is said to be rivalrous or a rival if its consumption by one consumer prevents simultaneous consumption by other consumers, [1] or if consumption by one party reduces the ability of another party to consume it. A good is considered non-rivalrous or non-rival if, for any level of production, the cost of providing it to a marginal (additional) individual is zero. [2] A good can be placed along a continuum ranging from rivalrous to non-rivalrous. The same characteristic is sometimes referred to as jointness of supply or subtractable or non-subtractable. [3]

Most tangible goods, both durable and nondurable, are rival goods. A hammer is a durable rival good. One person's use of the hammer presents a significant barrier to others who desire to use that hammer at the same time. However, the first user does not "use up" the hammer, meaning that some rival goods can still be shared through time. An apple is a nondurable rival good: once an apple is eaten, it is "used up" and can no longer be eaten by others. Non-tangible goods can also be rivalrous. Examples include the ownership of radio spectra and domain names. In more general terms, almost all private goods are rivalrous.

In contrast, non-rival goods may be consumed by one consumer without preventing simultaneous consumption by others. Most examples of non-rival goods are intangible. Broadcast television is an example of a non-rival good; when a consumer turns on a TV set, this does not prevent the TV in another consumer's house from working. The television itself is a rival good, but television broadcasts are non-rival goods. Other examples of non-rival goods include a beautiful scenic view, national defense, clean air, street lights, and public safety. More generally, most intellectual property is non-rival. In fact, certain types of intellectual property become more valuable as more people consume them (anti-rival). For example, the more people use a particular language, the more valuable that language becomes.

Non-rivalry does not imply that the total production costs are low, but that the marginal production costs are zero. In reality, few goods are completely non-rival as rivalry can emerge at certain levels. For instance, use of public roads, the Internet, or police/law courts is non-rival up to a certain capacity, after which congestion means that each additional user decreases speed for others. For that, recent economic theory views rivalry as a continuum, not as a binary category, [4] where many goods are somewhere between the two extremes of completely rival and completely non-rival. A perfectly non-rival good can be consumed simultaneously by an unlimited number of consumers.

There are four types of goods based on the characteristics of rival in consumption and excludability: Public Goods, Private Goods, Common Resources, and Natural Monopolies. [5]

Goods that are both non-rival and non-excludable are called public goods. Examples include clean air, national defense, and free-to-air broadcast TV. It is generally accepted by mainstream economists that the market mechanism will under-provide public goods, so these goods have to be produced by other means, including government provision.

On the other hand, private goods are rival and excludable. This includes things like a personal book. It is excludable because the owner can prevent anyone else from reading their book, and it is rival because one person reading it prevents another from reading it at the same time.

For goods that are both non-rival and excludable are called natural monopolies. For example, fire stations can exclude people by decide to letting their house burn down. However, the fire protection is not rival in consumption, once a fire department is built and paid taxes to, it doesn't cost much more to protect one more house.

Common resources are rival in consumption and non-excludable. This includes fish in the sea. When someone catches many fish, there are now fewer fish for the next person who comes by. But, since the ocean is so big, there's no way to exclude other people from fishing.

Related Research Articles

Microeconomics Branch of economics that studies the behavior of individual households and firms in making decisions on the allocation of limited resources

Microeconomics is a branch of economics that studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

Market failure in economics, inefficient resource allocation resulting in a net loss of value

In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient– that can be improved upon from the societal point of view. The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian philosopher Henry Sidgwick. Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, or externalities.

Public good (economics) Good that is non-excludable and non-rival

In economics, a public good is a good that is both non-excludable and non-rivalrous, in that individuals cannot be excluded from use or could benefit from without paying for it, and where use by one individual does not reduce availability to others or the good can be used simultaneously by more than one person. This is in contrast to a common good such as wild fish stocks in the ocean, which is non-excludable but is rivalrous to a certain degree, as if too many fish are harvested, the stocks will be depleted.

Service (economics) Transaction involving no transferral of physical goods

For service to be effective and profitable, however, there is always need for tangible, often sophisticated goods. This may be in form of equipment or facility. Although these goods are no transferred, they are often key success factors, the lack of which is unforgiving.

The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption as measured by their preferences subject to limitations on their expenditures, by maximizing utility subject to a consumer budget constraint.

Inferior good good that decreases in demand when consumer income rises

In economics, an inferior good is a good whose demand decreases when consumer income rises, unlike normal goods, for which the opposite is observed. Normal goods are those goods for which the demand rises as consumer income rises.

Normal good

In economics, a normal good is any good for which demand increases when income increases, i.e. with a positive income elasticity of demand.

Goods Tangible or intangible thing, except labor tied services, that satisfies human wants and provides utility

In economics, goods are materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods that are tangible property, and services, which are non-physical.

Private good

A private good is defined in economics as "an item that yields positive benefits to people" that is excludable, i.e. its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits; and rivalrous, i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce, which can cause competition for it. The market demand curve for a private good is a horizontal summation of individual demand curves.

Club good

Club goods are a type of good in economics, sometimes classified as a subtype of public goods that are excludable but non-rivalrous, at least until reaching a point where congestion occurs. Often these goods exhibit high excludability, but at the same time low rivalry in consumption. Because of that low rivalry in consumption characteristic, club goods have essentially zero marginal costs and are generally provided by what is commonly known as natural monopolies. Furthermore Club goods have artificial scarcity. Club theory is the area of economics that studies these goods. One of the most famous provisions was published by Buchanan in 1965 "An Economic Theory of Clubs", in which he addresses the question of how the size of the group influences the voluntary provision of a public good and more fundamentally provides a theoretical structure of communal or collective ownership-consumption arrangements.

Goods and services Outcome of human efforts to meet the wants and needs of people

Goods are items that are usually tangible, such as pens, salt, apples, and hats. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. Taken together, it is the production, distribution, and consumption of goods and services which underpins all economic activity and trade. According to economic theory, consumption of goods and services is assumed to provide utility (satisfaction) to the consumer or end-user, although businesses also consume goods and services in the course of producing other goods and services.

In traditional usage, a global public good is a public good available on a more-or-less worldwide basis. There are many challenges to the traditional definition, which have far-reaching implications in the age of globalization.

Durable good good that does not quickly wear out

In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out, or more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be considered perfectly durable goods because they should theoretically never wear out. Highly durable goods such as refrigerators or cars usually continue to be useful for three or more years of use, so durable goods are typically characterized by long periods between successive purchases.

Final good Commodity which is produced and subsequently consumed by the consumer

A final good or consumer good is a commodity that is used by the consumer to satisfy current wants or needs, rather than to produce another good. A microwave oven or a bicycle is a final good, whereas the parts purchased to manufacture it are intermediate goods.

Positional goods are goods valued only by how they are distributed among the population, not by how many of them there are available in total as would be the case with other consumer goods. The source of greater worth of positional goods is their desirability as a status symbol, which usually results in them greatly exceeding the value of comparable goods.

In economics, a common-pool resource (CPR) is a type of good consisting of a natural or human-made resource system, whose size or characteristics makes it costly, but not impossible, to exclude potential beneficiaries from obtaining benefits from its use. Unlike pure public goods, common pool resources face problems of congestion or overuse, because they are subtractable. A common-pool resource typically consists of a core resource, which defines the stock variable, while providing a limited quantity of extractable fringe units, which defines the flow variable. While the core resource is to be protected or nurtured in order to allow for its continuous exploitation, the fringe units can be harvested or consumed.

In economics, a good or service is called excludable if it is possible to prevent people (consumers) who have not paid for it from having access to it. By comparison, a good or service is non-excludable if non-paying consumers cannot be prevented from accessing it.

The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson, Jr. published in 1965. It develops a theory of political science and economics of concentrated benefits versus diffuse costs. Its central argument is that concentrated minor interests will be overrepresented and diffuse majority interests trumped, due to a free-rider problem that is stronger when a group becomes larger.

Common good (economics) economics

Common goods are defined in economics as goods that are rivalrous and non-excludable. Thus, they constitute one of the four main types based on the criteria:

Anti-rival good” is a neologism suggested by Steven Weber. According to his definition, it is the opposite of a rival good. When more people share an anti-rival good, the more utility each person receives. Examples include software and other information goods created through the process of commons-based peer production.

References

  1. David L. Weimer; Aidan R. Vining (2005). Policy Analysis: Concepts and Practice. Pearson: Prentice Hall. p.  72. ISBN   0-13-183001-5. Fourth Edition.
  2. Cornes, R., T. Sandler. 1986. The theory of externalities, public goods, and club goods. Cambridge University Press.
  3. Hess, C., E. Ostrom. 2006. Introduction. C. Hess, E. Ostrom, eds. Understanding Knowledge as a Commons: From Theory to Practice. The MIT Press, Cambridge, Massachusetts
  4. Leach, J. 2004. A course in public economics. Cambridge University Press: 155–56
  5. Mankiw, N. Gregory. (2012). Principles of microeconomics (6th ed.). Mason, OH: South-Western Cengage Learning. ISBN   978-0-538-45304-2. OCLC   742415439.

See also