Commoditization

What’s a Commodity? What’s Commoditization?

“The term commodity is used by economists to indicate an “undifferentiated good or service”. The classic example of a commodity is something like butter or wheat — there just isn’t much difference between butter or wheat from vendor A to vendor B. The term commoditization indicates what happens when a market moves from the status of a differentiated good to a commodity. For example, when no one knew how to make butter except for one or two farms, butter was not a commodity. And it had a premium price. When everyone knows how to make butter then it becomes a commodity and prices fall. Think about it: Do you really care what brand of butter you buy”


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