WORLDWIDE TRADING GROUP
A commodity is something for which there is demand,
but which is supplied without qualitative differentiation
across a market. It is a product that is the same no
matter who produces it, such as petroleum, notebook
paper, or milk. In other words, copper is copper. The
price of copper is universal, and fluctuates daily based
on global supply and demand. Stereos, on the other
hand, have many levels of quality. And, the better a
stereo is [perceived to be], the more it will cost.
One of the characteristics of a commodity good is that
its price is determined as a function of its market as a
whole. Well-established physical commodities have
actively traded spot and derivative markets. Generally,
these are basic resources and agricultural products
such as iron ore, crude oil, coal, ethanol, salt, sugar,
coffee beans, soybeans, aluminum, rice, wheat, gold
and silver.
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 silicon chip
but which is supplied without qualitative differentiation
across a market. It is a product that is the same no
matter who produces it, such as petroleum, notebook
paper, or milk. In other words, copper is copper. The
price of copper is universal, and fluctuates daily based
on global supply and demand. Stereos, on the other
hand, have many levels of quality. And, the better a
stereo is [perceived to be], the more it will cost.
One of the characteristics of a commodity good is that
its price is determined as a function of its market as a
whole. Well-established physical commodities have
actively traded spot and derivative markets. Generally,
these are basic resources and agricultural products
such as iron ore, crude oil, coal, ethanol, salt, sugar,
coffee beans, soybeans, aluminum, rice, wheat, gold
and silver.
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 silicon chip
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