On p. 124 of Against Politics, Anthony de Jasay makes an illuminating point in discussing the “textbook division of the universe of goods and services into two exogenously determined halves, public and private”:
Nothing is “excludable” without further ado; for nothing can be sold without the seller incurring costs to exclude from access those who would not pay the price.
Exclusion cost is no more avoidable in a good destined to be sold than is the cost of production and transport. Everything is excludable at some cost that may be high or low, depending on a host of circumstances, of which the physical characteristics of the good is only one.
Over the universe of goods, exclusion cost is a continuous variable. … Providing a good publicly saves exclusion cost. This advantage may be partly, wholly, or more than wholly offset by costs arising from wasteful use of the good the consumer can have without paying for it, and from other, less direct risks.
If social choice were usually “collectively rational,” goods would be provided publicly if the saving of exclusion cost outweighed the disadvantages and added costs of publicness.
So, whether a given good is public or private is an economic matter not technological one. For example, when a store owner invests into video cameras and security personnel to deter shoplifting, he spends money on enforcing exclusion. But no one seriously suggests that this cost is a good argument for communizing supermarkets.
Note that the last paragraph of the quote does not supply a sufficient condition for producing a good publicly, because even if the savings are considerable, it may still be that the good ought not to be produced at all, whether privately or publicly.
Let’s dub the criteria for publicness as follows:
Excludable (costs of exclusion are low) – e-happy;
Nonexcludable – e-sad;
Nonrivalrous (marginal variable cost is low or zero, at least until a certain point) – r-happy;
Rivalrous – r-sad.
(1) e-sad, r-sad: common resource subject to overexploitation, tragedy of the commons, and pure costs that are not captured as benefits by anyone: no good solution;
(2) e-sad, r-happy: public good: government production;
(3) e-happy, r-sad: private good: market production;
(4) e-happy, r-happy: “natural monopoly”: still market production.
Regarding (1), for example, congested roads within a city generate the costs of wasted time and road rage which are offset with no symmetrical benefits. Like waiting in line, they are pure costs or human misery with no redemptive value.
In (3), entrepreneurs can compete both on price and product / quality; in (4) they can compete on product only, since the MVC is already zero.
Thus, a movie theater bears the same costs of production regardless of whether its rooms are filled to 10% capacity or 90% capacity. Since the products will all be different, each producer will have a “monopoly” on his own uniquely differentiated product. It will enjoy a natural unenforced monopoly in a vacuous or tautological sense.