Commoditization: Difference between revisions

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{{Short description|Process where unique economic goods become interchangeable in the eyes of consumers}}

==Definition==

{{Distinguish|commodification}}

'''Commoditization''' is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition.

{{Economic anthropology|Basic}}

In [[business]] literature, '''Commoditizationcommoditization''' is defined as the process by which [[good (economics)|goods]] that have [[Value (economics)|economic value]] and are distinguishable in terms of attributes ([[Unique selling proposition|uniqueness]] or [[brand]]) end up becoming simple [[Commodity|commodities]] in the eyes of the market or consumers[[consumer]]s. It is the movement of a market from differentiated to undifferentiated price competition and from [[monopolistic competition]] to [[perfect competition]]. Hence, the key effect of commoditization is that the [[Market power|pricing power]] of the manufacturer or brand owner is weakened: when products become more similar from a buyer's point of view, they will tend to buy the cheapest.

==Commodity Valuation==

Commoditization can also refer to commodity valuation, a heuristic and mathematical tool which is used to calculate the projected and actual net cost or benefit of a behavior to society<ref>Rotheim, Roy J. "Keynes' monetary theory of value (1933)", [http://www.jstor.org/stable/4537623]</ref>. While "commodity value" actually refers to two separate variables, they are linked because [[Adam Smith]] defines commodities in terms of exchange value<ref>Kaushil, S. "The Case of Adam Smith's Value System Analysis", [http://www.jstor.org/stable/2662512]</ref>. In calculating the value of a social process, the following formula is used:

This is not to be confused with [[commodification]], which is the concept of objects or services being assigned an exchange value which they did not previously possess by their being produced and presented for sale, as opposed to personal use. One way to summarize the difference is that commoditization is about proprietary things becoming generic, whereas commodification is about nonsaleable things becoming saleable. In social sciences, particularly [[Cultural Anthropology|anthropology]], the term is used interchangeably with commodification to describe the process of making commodities out of anything that was not available for trade previously.<ref>Appadurai, Arjun, ed. (1986). ''The Social Life of Things: Commodities in a Cultural Perspective''. Cambridge UP, Cambridge.</ref><ref>Greenwood, D.J. (1977). "'Culture by the Pound: An Anthropological Perspective on Tourism as Cultural Commoditization". In ''Hosts and Guests'', ed. V. L. Smith, pp. 129-139. Philadelphia: University of Pennsylvania Press.</ref>

:::::: <math>v=cb</math>,

:where

:* <math>v</math> is the value of a behavior (the social benefit of a prison reform in terms of crimes prevented per year, for example)

:* <math>c</math> is the commodity (in [[utils]]/[[time]], the number of prisoners reformed, for example)

:* <math>b</math> is the net behavioral gain or loss (in utils/time, the benefit of a prison reform in terms of ex-convicts working for the economy, for example).

Commoditization can be the desired outcome of an entity in the market, or it can be an unintentional outcome that no party actively sought to achieve. (For example, see [[Xerox#Trademark]].)

While understanding '''individual and market behavior''' has been increasingly important in the work of modern [[sociologists]] and [[economists]]<ref>Grubb, Edward L. and Grathwohl, Harrison L. "Consumer Self-Concept, Symbolism and Market Behavior: A Theoretical Approach", [http://www.jstor.org/stable/1249461]</ref>, commodity valuation concerns the multivaleant nature of social processes. Indirectly a law of capital, the result is expressed in terms of the net social benefit or loss to society. As a heuristic, it can be appropriately substituted to apply to strict monetary calculations, such as the formula used to calculate [[Gross Domestic Product]].

According to [[Neoclassical economics|Neo-classical economic theory]], consumers can benefit from commoditization, since perfect competition usually leads to lower prices. Branded producers often suffer under commoditization, since the value of the brand (and ability to command price premiums) can be weakened.

See also: [[Commodification]].

However, false commoditization can create substantial risk when premier products do have substantial value to offer, particularly in health, safety and security.

[[Category:Commodities]]

==See also==

* [[Galápagos syndrome]]

==References==

{{Reflist}}

{{Commodity}}

[[Category:Commodities]]

[[Category:Business]]