I live in my sorority house with 25 other girls and one single WiFi modem that lives on the first floor. As you may guess, my third floor room receives little to no WiFi access at any point during the day- a fact that causes me (and my 7 other third floor roommates) several issues.
Determined to rid our floor of this problem, a few of my roommates proposed that someone should go buy an additional router that would resolve the issue and bring the gift of WiFi into our suite. If we start with the assumption that WiFi would act as a sort of public good, we assume that WiFi would be a non-rivalrous, non-excludable good for all of the girls living on the top floor. When we proposed the logistics of adding the additional router into our suite and imposing an equal cost on all 8 members of the suite, two of our roommates disagreed and we knew we would eventually run into a serious free rider problem, leading us to the decision to not buy the router.
This is the perfect example of a market failure because of the free rider problem. Our suite underproduced the public good of WiFi at an inefficient level because of the lack of cooperation from everyone and the assumption that those who did not pay would still probably use the WiFi network. One way that we could rid our suite of our free rider roommates and produce WiFi at an efficient level is if the sorority house itself provided the WiFi as a private, excludable good in which we had to pay a monthly fee in order to receive the password giving us access to the network. This solution would allow our suite to produce the WiFi at the optimal amount for those who are willing to pay and would save me from writing this post by using a hot spot and wrecking my family's data plan.
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