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commodity market

A commodity market standardizes contracts and what is traded via those contracts so that suppliers compete only on price. It is a highly abstracted model of any real world system.

"Commodity pricing" does not reflect any full cost accounting of the resource extraction?, transport or waste disposal that are implied by the mere existence and use of the "commodity" - that is, the comprehensive outcome of trade in the commodity is not calculated anywhere, especially as that trade is probably worldwide, or - at least - prices locally are set by those globally.

A product market standardizes only implied warranty? and terms of service? and some tests, e.g. health standards, for what products do. It commodifies some aspects of the product but still permits differentiation by branding.

A pure service economy model more or less eliminates both. This seems unlikely in the short term.

One advantage of commodity markets is that they only exist in a few places on Earth, and so it is quite simple in theory to apply taxes or charges that should apply to that commodity or trade in it, uniformly and fairly. The Tobin Tax? for instance on commodity trade in currency markets would exploit the fact that currencies are only really traded in about eight places in the world, in highly regulated markets. Likewise some kind of carbon tax? could potentially be collected on fossil fuel? commodities - such as a barrel of oil? - if the will were there.

See list of platform proposals for some relevant proposals to reform commodity market mechanics and make them work.

For a more general definition see the GFDL corpus article commodity market(external link) which explains the exact details of how they work.


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