Final answer:
The free-rider problem occurs when individuals avoid paying for a public good with the intention of using it once provided by others, leading to inefficiency in its private provision as it is nonexcludable and companies can't charge all users.
Step-by-step explanation:
The free-rider problem makes the private provision of a public good inefficient because individuals have an incentive to let others pay for the public good and then to free ride on the purchases of others. This presents a challenge since a public good is nonexcludable, meaning it's difficult or costly to prevent someone from using it if they haven't paid for it, like with national defense.
Therefore, if everyone acts as a free rider, hoping that others will bear the cost of the public good, the good may never be produced since the private companies wouldn't be able to generate revenue for services provided.