Definition
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.
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[1]. While "commodity value" actually refers to two separate variables, they are linked because Adam Smith defines commodities in terms of exchange value[2]. In calculating the value of a social process, the following formula is used:
- ,
- where
- is the value of a behavior (the social benefit of a prison reform in terms of crimes prevented per year, for example)
- is the commodity (in utils/time, the number of prisoners reformed, for example)
- 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).
While understanding individual and market behavior has been increasingly important in the work of modern sociologists and economists[3], 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.
See also: Commodification.