Commodity
The wide availability of commodities typically leads to smaller profit margins and diminishes the importance of factors (such as brand name) other than price.
Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat.
Other definitions of commodity include something useful or valued[4] and an alternative term for an economic good or service available for purchase in the market.
[1] Karl Marx described this property as follows: "From the taste of wheat, it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist.
"[8] Petroleum and copper are examples of commodity goods:[9] their supply and demand are a part of one universal market.
Non-commodity items such as stereo systems have many aspects of product differentiation, such as the brand, the user interface and the perceived quality.
Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently.
As such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and DRAM chips.
An article in The New York Times cites multivitamin supplements as an example of commoditization; a 50 mg tablet of calcium is of equal value to a consumer no matter what company produces and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little brand differentiation.
[10] Following this trend, nanomaterials are emerging from carrying premium profit margins for market participants to a status of commodification.
For example, milk, eggs, and notebook paper are not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive factor in the purchasing choice.
To these customers, distinctions such as "organic versus not" or "cage free versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or Forest Stewardship Council certification count toward differentiating brands of notebook paper.
These markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity.
Adam Smith maintained that exchange value was made up of rent, profit, labour and the costs of wear and tear on the instruments of husbandry.
Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise.
[29] The first commodity super cycle started in late 1890 and was accelerated on the back of widespread U.S. industrialization and World War 1.
[30] In the 1970s as world economies grew they needed more materials and energy to support expansion leading to increases in prices across the board.
The next or the fifth supercycle could arrive as the world enters the final phases of the COVID-19 pandemic and starts to build massive clean energy infrastructure in view of the commodity price increase.
