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A commodity is any good or service that is interchangeable with another good or service of the same type.

Commodities generally include basic resources, agricultural products and energy products because they are essentially uniform.

For example, oil from Newfoundland can be interchanged with oil from the Middle East: it is a commodity because where it comes from makes no difference. Similarly, wheat from Western Canada can be interchanged with wheat from Ukraine.

For this reason, commodities of the same type are priced more or less the same throughout the marketplace (instead of on a product-by-product basis).

More about commodities

The term commoditization refers to the process by which products that once competed based on their differentiated features start to become less distinct and end up competing primarily on price. For example, personal computers have become commoditized and now sell primarily on the basis of price.

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