Private Good

A Private Good refers to goods or services that belong to a specific consumer and cannot be used or consumed by anyone else. These goods are excludable and rivalrous in nature, given the way they prevent consumption by other consumers and the sense of competition they inculcate among them to use or consume those products before other individuals.

Private goods are chosen based on personal tastes and preferences, and hence, people with similar interests get attracted to that particular item. They exclude individuals from consuming products or services if they don't pay for them. It also leads to a rivalry between individuals for the same good and service as consumption by one reduces the product's availability for the other person.

The private good definition refers to a product or service that can only be used after their purchase. This consumption, as a result, removes their availability to the other person and leads to a sense of competition among consumers to buy those products before others purchase them. This rush buying, in turn, limits the quantity of that product in the market, thereby hampering its availability to other interested buyers. Though these goods cannot be purchased once sold, the ownership rights can be transferred to other individuals at the original owner's will.

The concept of private goods in economics states that these goods form the basis of market economies, given their major availability. So far as the prices are concerned, these products are priced on the basis of the market forces of demand and supply. Nevertheless, when combined with externalities, these goods may also lead to market distortion and failure, given their effect on the supply and demand of products. This makes the concerned governments interfere in the markets and facilitate the availability of these goods as public goods, thereby balancing the market forces. 

For instance, education as a private good can also be provided as a public good to benefit the masses. When education is introduced to the public and people get an opportunity to use it, the availability does not remain limited, and hence, it becomes accessible to all. To make the market forces equitable and fair for private goods, governments consider regulating their access, making proper public policy, and ensuring just income distribution amongst people.  

The advantages of private goods can be reflected through the characteristics they exhibit. In addition, these features, if not appropriately controlled, may lead to disadvantages. Let us check out some of the features below:

1. Excludable: Private goods prohibit others from consuming them if someone has already purchased and begun using them. Manufacturers or service providers have the right to stop non–payers from using these goods or services by invoking ownership rights.
2. Rivalrous: These goods limit their availability by giving ownership rights to people who pay for and purchase them. This means that if one individual uses a good or service, then the others will not be able to access it in any manner.
3. Generate Externalities: The presence of private goods generates externalities, which can either be positive or negative. Positive externalities are factors and conditions that make these goods benefit a third party when consumed or used. On the other hand, negative externalities include factors and conditions that make a third party pay for the consumption rather than the party that actually consumes it. This must be controlled and discouraged.
4. Dependence on market forces: Demand and supply forces determine their price, quantity supplied, and resource allocation to the production of these goods or availability of services. 
5. Ownership: Private goods are strictly associated with property rights, which means their owners can fully control their access to others and produce, distribute, and indulge in profit-making activities. In short, these products can be traded without any restrictions. Moreover, the rights of ownership can be transferred if the original owner desires to do so.

Let us use a few scenarios below to understand the private good definition:

Example #1 

Suppose Maria had to take a flight to Seattle to get together with friends who were waiting for her in the city. On the other hand, John received a call from his cousin, who informed him that his mother in Seattle was admitted to the hospital as she suffered a cardiac arrest. The latter started looking for the most recent flight for the city but felt disappointed to know that all of the seats were occupied. Meanwhile, Maria came to know at the last minute that her friends canceled the plan. While Maria did not board the flight and the seat remained vacant, John had to book the next flight's ticket because of the unavailability of the flight tickets.

Here, the flight ticket is a private good, which Maria paid for but could not utilize, and her ownership of that seat led to the unavailability that John faced. Had the latter bought the tickets before Maria, the scenario would have been different. This example exhibits both the excludable and rivalrous nature of a private good.

Example #2

A December 2023 article criticized a part of the speech delivered by the Bank for International Settlements' Innovation Hub's head, Cecilia Skingsley, where she mentioned money as a public good.  The write-up stated how a product needs to be non-excludable and non-rivalrous in nature to be characterized as a public good. As money does not exhibit any of these features, it can be identified as a private good as individuals rush to acquire it (indicating rivalrous nature), and once it reaches an individual, that portion cannot be used by anyone else (reflecting its excludable feature). 

Further, it added how being provided by a public sector entity does not solely make a product public. Though the article supported the fact that the government took over the production of money from private markets, it also indicated the solid control that the government exercised over money and payments.

Private and public goods are most widely defined goods found in the market. Let us have a look at the differences between them in brief, below: