Club goods are goods that are excludable but nonrival. A television show like Game of Thrones, for example, is excludable—you must buy HBO to watch the show, at least in its first run—but it’s also nonrival because when one person watches, this does not reduce the ability of another person to watch. Clearly, markets can provide goods that are excludable but nonrival, but they do so at the price of some inefficiency. HBO prohibits some people from watching Game of Thrones, for example, even though they would be willing to pay the cost (close to zero for an additional viewer) but not the price (say, $15.99 a month).

In practice, the inefficiency from the underprovision of most club goods like television, music, and software is not that big a deal. The fixed costs of producing these goods must be paid somehow and we do not want to lose the diversity, creativity, and responsiveness provided by markets.

Entrepreneurs are constantly looking for ways to turn nonexcludable, nonrival goods such as television into club goods (nonrival but excludable), such as cable television, so that they can be provided at a profit. Furthermore, entrepreneurs can sometimes find clever ways of profiting from nonrival goods even without relying on exclusion.

Radio and television are peculiar goods because although they are public goods, nonrival and nonexcludable, they are provided in large quantities by markets. How is this possible? When radio first appeared, no one could figure out how to make a profit from it and most people thought that government provision would be necessary if people were to benefit from this amazing discovery. After much experimentation, however, entrepreneurs did discover how to give radio away for free (the efficient solution) and yet still make a profit—they discovered advertising. Advertisers pay for the costs of programming that is then given away for free.

Advertising, of course, is not a perfect solution to the problem of nonexcludability and nonrivalry, but for radio and broadcast television, it has worked fairly well. Advertising works so well that some nonrival goods are provided without exclusion even when exclusion would be cheap. Google, for example, spends billions of dollars indexing the Web and developing search algorithms and then it offers its product to anyone in the world for free. Google could exclude people who don’t pay for its service, but Google has discovered that selling advertising while providing its services for free is more profitable.

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Finally, Wi-Fi is an interesting example of a nonrival but potentially excludable public good because it is currently provided in just about every possible manner. Wi-Fi is sold by private firms like Sprint who exclude nonpayers by requiring security codes. Other firms offer Wi-Fi for free but only if you watch advertising. Cafés such as Panera Bread offer free Wi-Fi to help attract customers. Wi-Fi is also given away by people who choose not to close their access points. In Houston, the government taxes citizens to pay for the network and then offers free access. Each of these methods has its advantages and disadvantages.