In business literature, commoditization is defined as the process by which

goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...

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. It is generally measured through units of currency, and the interpretation is therefore ...

and are distinguishable in terms of attributes ( uniqueness or

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

) end up becoming simple

commodities In economics, a commodity is an economic good, usually a resource, that 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. The price of a co ...

in the eyes of the market or

consumer A consumer is a person or a group who intends to order, or uses 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. by branding or quality) and hence are not perfec ...

to perfect competition. Hence, the key effect of commoditization is that the

pricing power In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market powe ...

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 Within a capitalist economic system, commodification is the transformation of things such as goods, services, ideas, nature, personal information, people or animals into objects of trade or commodities.For animals"United Nations Commodity ...

, 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, societies, and linguistics, in both the present and past, including past human species. Social anthropology studies patterns of be ...

, 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, 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. Examples are counterfeit drugs and generic network services (loss of 911).

References

{{Commodity Commodities

See also

References