February 28, 2024 

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AGGLOMERATION: The clustering of several similar or related activities at the same location. Many industries have firms that tend to agglomerate, that is, locate very close to one another, leading to geographic concentration. For example, the motion picture industry is concentrated in California, the fashion industry is concentrated in New York, and the petroleum industry is concentrated in Texas. Agglomeration can be caused by accessibility to a concentrated natural resource (such as petroleum or sunny weather), but if often feeds upon itself through agglomeration economies. Firms in the same industry often have lower production cost when the located near their competitors.

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Goods characterized by rival consumption and the ability to exclude nonpayers. Private goods are one of four types of goods differentiated by consumption rivalry and nonpayer excludability. The other three goods are public (nonrival consumption and nonpayers cannot be excluded), common-property (rival consumption and nonpayers cannot be excluded), and near-public (nonrival consumption and nonpayers can be excluded). Rival consumption and the ease of excluding of nonpayers means private goods can be efficiently exchanged through markets.
Private goods are one of four types of goods differentiated by consumption rivalry (rival or nonrival) and nonpayer excludability (excludable and nonexcludable). In particular, these are goods characterized by rival consumption, meaning the consumption by one person imposes an opportunity cost on others, and the ability to exclude nonpayers from gaining benefits from consumption.

Private Goods
The exhibit to the right illustrates the four alternative types of goods -- private, public, common-property, and near-public -- based on the mix of consumption rivalry and nonpayer excludability. Private goods are in the top right cell of the matrix, with rival consumption and the ability to exclude nonpayers.

Private goods have well-defined property rights that can be transferred to others, but only if others pay to acquire ownership. These goods can be easily, effectively, and efficiently exchanged through markets, that is, through the actions of producers and consumers of the private sector. Examples of private goods range far and wide, from candy bars to cars to comic books to corduroy sport coat. In fact, most, not all but most, goods traded through markets are private goods.

Private goods are ideally suited for efficient market exchanges. Nonpayers can be excluded from consumption and they should be. Efficiency is achieved if those who consume a private good pay a price equal to the marginal cost of rival consumption imposed on others.

Examples Galore

Most goods consumed by most people most of the time fall in the category of private goods. From a Deluxe Club Sandwich eaten by Edgar Millbottom to the cozy bed provided to weary travellers at the Shady Valley Bed and Breakfast Inn. From the OmniFast 9000 athlete shoes purchased by Duncan Thurly at the MegaMart Discount Warehouse Supercenter to the gasoline that corporate junior executive Jonathan McJohnson buys to fuel his OmniSport All Terrain 4x4 SUV.

Most consumer expenditures on food, clothing, shelter, and other commonly purchased goods are for private goods, private goods that are exchanged through markets.

Rival Consumption

Because private goods are rival in consumption, the consumption by one person prevents simultaneous consumption by others, and thus prevents others from receiving the benefits of consumption. This means consuming a private good imposes an opportunity cost on others who are not able to consume.

Suppose, for example, that Edgar Millbottom is pondering the consumption of a Deluxe Club Sandwich produced by Manny Mustard's House of Sandwich. When Edgar consumes this sandwich, he and he alone receives the satisfaction and benefits provided. More over, when he consumes the sandwich, no one else, such as his friend Alicia Hyfield, can consume it. Alicia is unable to enjoy this particular sandwich. Alicia, in other words, foregoes the satisfaction that she could have received from the sandwich, and thus incurs an opportunity cost.

With rival consumption, efficiency is best achieved when the person benefitting from the good pays a price equal to the opportunity cost. Markets are very good at doing just that.

Nonpayer Excludability

Private goods are also characterized by the ability to exclude nonpayers from gaining ownership and control, and thus from receiving the benefits of consumption. In other words, private goods have well-defined property rights. The owner of a private good can set and enforce the terms by which the ownership of the good is transferred to another.

Again, let's turn to Edgar Millbottom's desire to consume one of Manny Mustard's Deluxe Club Sandwiches. This sandwich has well-defined property rights. Manny, the producer, has ownership and control of the sandwich. He has the ability to transfer that ownership and control on his terms. The terms Manny has set is a $5 price. If Edgar wants to gain ownership of the sandwich, presumably to eat, then he must pay Manny the $5 price. No payment means no sandwich.

Markets to the Rescue

With nonpayer excludability, private goods can be exchanged through markets. Markets are ideally suited for exchanging private goods.

The combination of rival consumption and nonpayer excludability means that private goods are both efficiently provided through markets and ideally suited for market exchanges. With rival consumption markets work to achieve efficiency. Fortunately, nonpayer excludability makes markets the ideal mechanism for making exchanges.

It's almost as if society created markets for the expressed purpose of exchanging private goods. As a matter of facts, society DID create markets for the expressed purpose of exchanging private goods. And markets do a relatively good job most of the time of exchanging private goods.

Three Other Goods

Private goods are only one of four types of goods characterized by consumption rivalry and nonpayer excludability. The three are public goods, common-property goods, and near-public goods.
  • Public: Public goods are characterized by nonrival consumption and the inability to exclude nonpayers. Public goods cannot be exchanged through markets. The only efficient way to provide public goods is through governments.

  • Common-Property: Common-property goods are characterized by rival consumption and the inability to exclude nonpayers. These goods can not be efficiently exchanged through markets and governments are often called upon to control or regulate their use.

  • Near-Public: Near-public goods are characterized by nonrival consumption and the ability to exclude nonpayers. These goods are often exchanged through markets, but are more efficiently provided by governments.


Recommended Citation:

PRIVATE GOODS, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2024. [Accessed: February 28, 2024].

Check Out These Related Terms...

     | public finance | consumption rivalry | nonpayer excludability | public goods | common-property goods | near-public goods | free-rider problem | public goods: demand | public goods: efficiency |

Or For A Little Background...

     | good | production | efficiency | consumption | market demand | market | market efficiency | government sector | public sector | property rights | private sector |

And For Further Study...

     | market failures | taxation principles | tax proportionality | tax effects | tax equity | involuntary exchange | benefit principle | ability-to-pay principle |

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