Club Goods

What Are Club Goods?

Club goods (also known as club commodities) are a type of good in economics that are excludable but non-rivalrous.

Because club goods are non-rivalrous, they aren't at risk of being used up or defiled by one or more people, at least until sustained use causes the goods' use to become congested. They are, however, excludable, meaning that persons can be prohibited from accessing or using them.

These commodities frequently have a high level of excludability and a low level of consumption rivalry. As a result, club products have nearly zero marginal costs and are typically provided by natural monopolies. In addition, club items have a fictitious scarcity.

Understanding Club Goods

"Club goods" is a term used to describe objects and locations that are quite enormous, such as a public park. However, no matter how big or small anything or somewhere is, it has a limited capacity. 

The field of economics that investigates these goods is known as club theory.

Buchanan's "An Economic Theory of Clubs," published in 1965, addressed how the organization's size affects the voluntary provision of a public benefit. More fundamentally, it provided a theoretical structure of cooperative or collective ownership-consumption arrangements.

According to Buchanan, excludable products were consumed by far more people than private goods but far fewer people than public goods.

Accordingly, he proposed a theory of clubs to address these forms of commodities, which would examine the magnitude of the most reasonable expense and the framework for the distribution of consumption.

The model focused on volunteer clubs:

• How to reach an optimal number of members
• Determining the worth of an ideal club member.

He gave instances of distinguishing between a private good, a public good, and a club good.

Club goods are non-rivalrous (in the sense that their usage does not lead to their exhaustion), but only to a certain extent.

Due to traffic congestion, a private park or beach may become overrun, making it temporarily undesirable for others. On the other hand, the commodities can be used by others once the traffic has cleared.

Due to their excludable character, club items are frequently underutilized. Therefore, when there is an overabundance of use, they become unavailable or unusable until the congestion subsides.

Club Good Vs. Private Good Vs. Public Good

Here's a table outlining the key characteristics of club goods, private goods, and public goods:

What does non-rivalrous Mean?

Non-rivalrous refers to a characteristic of goods or resources in economics and public policy; it is a term applied to club goods.

A non-rivalrous good is one for which consumption by one individual does not diminish its availability or utility for others. In other words, when something is non-rivalrous, one person's use or consumption of it does not prevent others from using it simultaneously or in the future.

Non-rivalrous goods are typically characterized by two main features:

• Non-Excludability: It is difficult or impossible to exclude individuals from using or benefiting from the good. Even if you wanted to restrict access, it's challenging to do so effectively.
• Non-Diminishability: The use of the good by one person does not reduce its availability or quality for others. Multiple individuals can consume or use the good simultaneously without any interference.

Examples Of Non-Rivalrous Goods

Some of examples are:

1. Club Goods: These are goods that are excludable but non-diminishable. An example is a membership-based streaming service. When a member accesses content on such a platform, it doesn't reduce the availability of that content to other members, but non-members are excluded from access.
2. Public Goods: These are goods that are both non-excludable and non-diminishable. Classic examples include clean air, national defense, and public parks. When one person enjoys clean air or protection from national defense, it doesn't reduce these benefits for others.
3. Information and Knowledge: Information, such as digital content, ideas, and knowledge, is often non-rivalrous. When you share information online, others can access and use it without diminishing its availability to you.
4. Open-Source Software: Open-source software is a type of software that is freely available to the public. When one person downloads and uses open-source software, it doesn't reduce its availability to others.

Understanding whether a good is rivalrous or non-rivalrous is essential in economic and policy discussions because it can have significant implications for how resources are allocated, how markets function, and how public goods are provided and funded.

What is Excludability in goods?

The extent to which a commodity or service is only available to paying consumers is referred to as excludability. This concept is particularly relevant when discussing club goods, which exhibit both excludable and non-rivalrous characteristics.

Examples of Excludable and Non-Excludable Goods:

1. Broadcast Television: Broadcast television is an example of a non-excludable good. It's available to anyone with a television and antenna because individuals can watch it without paying. In this case, it has low excludability.
2. Cable Television: Cable television, on the other hand, has a high level of excludability. It is a paid service, and access to cable channels is restricted to subscribers. This excludability is a characteristic of many club goods.
3. Lighthouse Services: Some things are, by nature, non-excludable. Take lighthouse services, for instance. It's challenging to make the services of a lighthouse excludable because their purpose is to provide guidance to ships in the vicinity, and excluding ships would defeat their purpose. In such cases, the lack of excludability is often due to design or choice.

Rivalry in Consumption

Rivalry in consumption refers to the extent to which one person's consumption of a specific unit of an item or service prevents others from doing the same. 

For example, an orange has high consumption competition because if one person consumes an orange, another cannot swallow the same orange completely. Of course, they can share the orange, but neither of them can eat the whole thing.

On the other hand, a park has no consumption rivalry since one individual "consuming" (i.e., enjoying) the entire garden does not obstruct another's ability to do so.

From the producer's standpoint, club goods have low consumption rivalry among existing members or users. This means that when one member uses the good, it doesn't significantly affect others' ability to use it simultaneously.

However, it's important to note that club goods are not public goods; they still require membership or access rights, and their provision isn't close to zero cost like public goods.

Researched and authored by Rhea Rose Kappan | LinkedIn

Reviewed and edited by Ankit Sinha | LinkedIn

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Industrial Goods Sector
• Inferior Goods
• Non-Excludable Goods
• Normal Goods
• Public Goods