Definition of commoditize
- commoditizing bandwith
- fierce competition threatened to commoditize prices
These example sentences are selected automatically from various online news sources to reflect current usage of the word 'commoditize.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
Commoditization refers to a good or service becoming indistinguishable from similar products.
An item should satisfy 3 conditions to be considered a commodity: 1) it must be standardized and, for agricultural and industrial commodities, in a "raw" state; 2) it must be usable upon delivery; and 3) its price must vary enough to justify creating a market for it.
Most people understand commoditization when it comes to corn, soybeans, cotton, or other raw materials (i.e., the idea that "it's all the same."). But financial instruments can be commoditized, too.
For example, in the past, every mortgage issued was considered unique -- that is, the terms and conditions of the loans were specialized according to the borrower and the property. But over time, the Federal National Mortgage Association (Fannie Mae), and the Government National Mortgage Association (Ginnie Mae) commoditized mortgages by offering to buy almost any mortgage that met a set of conforming standards. By creating a massive market for mortgages, these agencies encouraged banks to streamline and standardize the types of mortgages they offer to consumers.
Commoditization makes an asset easier to trade and encourages a more liquid market. In some cases, this can add volatility to the price of the commoditized entity, but in other cases it can spur economic activity.
In the case of the mortgage industry, commoditization allows lenders to receive cash from selling conforming mortgages to government agencies and government-sponsored entities. The banks can then use the cash to issue more loans, theoretically spurring economic growth.
What made you want to look up commoditize? Please tell us where you read or heard it (including the quote, if possible).