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I'll agree, but also note that commodities are fungible.
by i_am_proteus 6y ago
I'll agree, but also note that commodities are fungible.
- gumby 6y agoSorry, that was precisely my point. Commodities depend on their fungibility: that wheat is all durum and has an impurity level below X; the sulphur level of that crude oil is between Y and Z, and so on. Plus that the seller will deliver per the contract There's a game theory argument that the system is somewhat self-managing; though you could defect in any single transaction your reputation would suffer and it wouldn't be worth it. Perhaps it's a good counterexample because of its size: everybody purchasing directly in the commodities market (i.e. people who take delivery) can afford to have one bad batch because their volume is so high. But still, that depends on some degree of gatekeeping on the input side.
- i_am_proteus 6y agoIndeed, and good food for thought. The fungibility is a feature both of these products being commodities in general, and of their quality being measurable. When measuring quality is cheap and easy, the risks for a defector are high. When measuring quality is expensive and/or difficult, the risks for a defector are lower, and the defector's incentives may therefore be comparably greater.