Commodification is the process by which something becomes a commodity. A commodity has two primary characteristics: it has a market price and is undifferentiated. Commodification is associated with the creation of markets for things such that they are bought and sold at a market price. It is also associated with a breakdown of differentiation whereby things that were viewed as unique are viewed as common, standardized and unexceptional. The following are illustrative examples.
Natural ResourcesNatural resources such as a beach that was once a shared resource that has been privatized and sold at a market price. It is common for a society to prevent the ownership of certain types of natural resources to preserve them as a common good.
FoodMost food is a commodity that is produced at great scale and sold at market. The term commodity implies that consumers see little or no difference from one item to the next. For example, consumers buy corn at the lowest price available and do not typically invest time or money seeking out higher quality corn. Farmers who produce a commodity food must accept the market price and have no influence over prices. They may seek to overcome this by producing an artisanal crop that is non-commoditized.
ProductsProducts are commoditized when they must sell at or near a market price. This occurs when consumers see little difference between products such that they always buy based on price. Producers often seek to avoid commoditization by improving the perceived quality of their products to stand out in a crowded market. In some product categories, this simply does not work as consumers have no interest in quality above that offered by commodities.
ServicesAs with products, services are commoditized when consumers purchase primarily based on price. For example, economy seats on flights are commoditized such that customers are willing to fly lower cost airlines despite lower quality. This gives airlines little incentive to improve their services as customers keep booking based on price even if customer service or safety is lacking.
LaborLabor is commoditized when employers see little difference between workers with a particular skill set. This prevents labor from commanding a high salary or having much influence over their employer to demand better working conditions. When a new skill emerges such as software development in the 1960s, employers may initially view such labor as unique and high value with a difference between the skill level of workers. However, with time as more people obtain the skill some employers start to view it as a commodity and make hiring decisions based on salary as opposed to differences between candidates. Labor that is commoditized is often referred to as human capital while labor that isn't commoditized can be described as talent.
TechnologyA new technology is often not viewed as a commodity as businesses and consumers eagerly pay more for differences between products. For example, in the late 1970s consumers paid hundreds of dollars more for premium models of videocassette recorder than they did for entry level models. As quality improves or competing technologies emerge, businesses and consumers lose interest in the difference between models and begin to buy based on price alone. With time, almost all technology becomes a commodity with a standard level of quality and a market price. Producers fight this tendency by constantly reinventing technology to produce fresh items that can command a premium price.
DataData can be easily and cheaply stored, transferred, copied, modified and processed. As such, it has a tendency to be quickly commoditized. For example, firms once invested large sums in market research whereby they engaged consumers to understand elements such as customer needs and perceptions. Such specialized initiatives can be replaced with commodity offerings such as software that attempts to extract such information from social media data.
KnowledgeKnowledge is information as it exists in the human mind. This can be highly valued such as an executive that receives extremely high pay for their industry knowledge. With time, certain types of knowledge can become commoditized. For example, if there are a large number of people with a PHD in a particular subject employers may begin to view such knowledge as interchangeable.
Social StatusSocial status is traditionally established by a process of social interaction and connection. In modern societies, this has been partially commoditized whereby status is bought and sold as luxury items and other products and services that represent status. Social media, credit scores and other automated assessments of social status may also commoditize this element of the human experience.Culture is commoditized when it revolves around identical mass produced products, services and experiences that are sold at a market price. For example, the culture of a nation that revolves around services such as fast food, products such as cars and experiences such as a theme park. This can be contrasted with non-commoditized culture such as a unique local festival or tradition.
ExperienceThe human experience itself can be commoditized such that experiences are standardized, packaged and sold at a market price. For example, a commodity service such as a standard tour of Paris as opposed to a more unique experience such as exploring Paris on your own.
EducationA commoditized education system views students as much the same and pushes them through the same series of knowledge consumption and testing. This neglects the unique potential and talents of each individual.
HealthcareHealthcare is commoditized when it is heavily optimized for cost reduction such that every minute in a hospital bed or with a doctor is carefully measured and optimized.
Public ServicesPublic services are services that are so valuable that they are viewed as above the profit motive. For example, an art gallery that preserves priceless culture that doesn't buy and sell art on a market in an attempt to profit. These are commoditized when they are privatized or when the government offering the services optimizes aggressively for cost as opposed to optimizing for the greater good of society.
Economic BadsAn economic bad is negative value produced by an economic system such as pollution or reductions in quality of life. In many cases, economic bads are created freely without any payment for the damage created. One potential solution to this problem is creating markets for economic bads such that damage is capped and people buy and sell the right to produce an economic bad.
NotesAlthough commoditization has somewhat negative connotations, it should be noted that it also has benefits. Commoditization allows for great scale of production and low prices. It stimulates innovation as firms seeking to avoid commoditization must constantly improve. Likewise, commodification of labor pushes individuals to learn new skills and become talented in order to avoid a commoditized role in the economy.
|Also Known As||Commoditization|
|Definition (1)||The process by which something becomes a commodity.|
|Definition (2)||The process by which something becomes a good to be bought and sold on a market.|
|Definition (3)||The process by which a good becomes viewed as undifferentiated such that it is purchased based on price alone.|
|Definition (3)||The process by which resources, products, services, labor and experiences become viewed as undifferentiated resources that can be bought and sold at a market price.|
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