business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for ...

literature, commoditization is defined as the process by which

goods In economics, goods are anything that is good, usually in the sense that it provides welfare or utility to someone. Alan V. Deardorff, 2006. ''Terms Of Trade: Glossary of International Economics'', World Scientific. Online version: Deardorffs ...

that have

economic value In economics, economic value is a measure of the benefit provided by a goods, good or service (economics), service to an Agent (economics), economic agent, and value for money represents an assessment of whether financial or other resources are ...

and are distinguishable in terms of attributes (

uniqueness Uniqueness is a state or condition wherein someone or something is unlike anything else in comparison, or is remarkable, or unusual. When used in relation to humans, it is often in relation to a person's personality, or some specific characterist ...

brand A brand is a name, term, design, symbol or any other feature that distinguishes one seller's goods or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create and ...

) end up becoming simple

commodities In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Th ...

in the eyes of the market or

consumer A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

s. It is the movement of a market from differentiated to undifferentiated price competition and from

monopolistic competition Monopolistic competition is a type of imperfect competition such that there are many producers competing against each other but selling products that are differentiated from one another (e.g., branding, quality) and hence not perfect substi ...

perfect competition In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In Economic model, theoret ...

. Hence, the key effect of commoditization is that the 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. This is not to be confused with

commodification Commodification is the process of transforming inalienable, free, or gifted things (objects, services, ideas, nature, personal information, people or animals) into commodities, or objects for sale.For animals"United Nations Commodity Trade Stati ...

, 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

anthropology Anthropology is the scientific study of humanity, concerned with human behavior, human biology, cultures, society, societies, and linguistics, in both the present and past, including archaic humans. Social anthropology studies patterns of behav ...

, the term is used interchangeably with commodification to describe the process of making commodities out of anything that was not available for trade previously.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. 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.) According to

Neo-classical economic theory Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a goo ...

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

References

{{Commodity Commodities Business

See also

References