Will it scale? Here, here, and here, we talked about rivalry | Professor M

Will it scale?

Here, here, and here, we talked about rivalry and excludability from the perspective of introductory economics. I am afraid, though, it might be time to rewrite this section of a textbook.

The question is not whether one person’s consumption detracts from the consumption of another person. Instead, the relevant question is: Will it scale? Can we produce and deliver to multiple consumers at a time?

The textbook example of a non-rival good is satellite TV: Many consumers may simultaneously enjoy the broadcast of a film. The same movie on a DVD would be a private good; only one venue can show it at a time.

But the good is intrinsically the same: People are watching a movie at home. How exactly the movie got onto their screens is second-order. What’s the point of calling one good non-rival and another rival if the consumption experience is identical?

It’s the production technology that’s different. The production of movie-watching experiences with a satellite is more scalable than that with a single DVD.

Let’s take it one step further. The textbook example of a public good (i.e., non-rival and non-excludable) is national defense. But again, this is so only for threats the defense against which is scalable under existing technologies. Against a conventional military invasion, national defense is, in fact, a public good.

But what if the enemy appears randomly in different cities potentially at the same time? What if the enemy recruits citizens upon wounding them, and these citizens inadvertently attack their compatriots?

Against such threats, the national defense doesn’t look like a public good anymore. It becomes clear that defense resources will be rationed across regions—producing rivalry and, potentially, excludability.