Commodity Differentiation And Social Welfare Improvement

In a long period of time during the development of human society, economic growth has been a booster to enhance social welfare. However, economic growth to a certain stage may have some negative effectiveness on social welfare when the material wealth per person possessed and consumed reaches to a certain scale. On the one hand, the promotional effectiveness of economic growth to social welfare may be weakened with the law of diminishing marginal utility being strengthened; on the other hand, economic growth may cause some issues such as external diseconomies, environmental pollution, energy shortages and spiritual emptiness which can influence human life seriously and further result in decreased effectiveness of satisfaction and reduced social welfare. Nowadays, the negative effectiveness of economic growth has overwhelmed its positive effectiveness to social welfare enhancement. It is wise to discover the source and explore the means of social welfare from both economic growth perspective and other new broader perspectives.Whether in the Marxist political economy or in the economics, the economic form of commodity has been researched with the premise that commodity is highly abstract. The abstract is no doubt necessary to establish the theory. However, because of the abstract the individual existence of commodities and the enormous welfare benefits achieved during the process where the commodity being transformed from a single form to differentiated forms are ignored. This paper introduces Michael Porter’s concept of differentiation strategy to the economic research framework of social welfare improvement, and then points out that the richness of differentiated commodities and the optimization of consumer demand matching structure will become primary force to continuously promote social welfare when per capita income reaches a certain stage. The paper is made up of five parts.In the first part, theories on people-oriented Social Welfare are analyzed; development of neo-classical welfare economics and modern welfare economics is overviewed; contributions of psychology, behavioral economics, externality theory, modern property rights theory, environmental economics, dual economic theory, and the core competitive advantage theory to social welfare improvement are revealed.In the second part, commodity’s general utility with which common needs of mass consumers are satisfied and commodity’s diverse utility with which individual needs of minority consumers are satisfied are differentiated; distinguished laws of these two types of utility are analyzed; characteristics of the demand of differentiated commodity and relationship between price changes given that consumer has or has not a preference for differentiated commodity are examined; the theory of "optimal differentiated space" are proposed based on the Chamberlain’s theory of monopolistic competition and the commodity market characteristics; followed the theory of "optimal differentiated space", mathematical model is constructed to explore the possibility and conditions of long-term excess profits that manufacturers can achieve.In the third part, why greater consumption welfare effects can be achieved from differentiated commodities than from non-differentiated commodities is explained considering that differentiation can weaken the law of diminishing marginal utility and enhance consumers’ welfare level by providing consumers with better choices and stimulating new desires; why greater production welfare effects can be achieved from differentiated commodities than from non-differentiated commodities is explained based on the analysis of the relationship between commodity differentiation and production factors utilization, labor productivity and total factor productivity; why greater transaction welfare effects can be achieved from differentiated commodities than from non-differentiated commodities is explained considering that the exchange of differentiated commodity can lead to Pareto improvement whether market information is symmetric or asymmetric; the cost of commodity differentiation is clarified based on systematical analysis of R&D costs, marketing costs, additional service costs, transaction costs, learning costs and the opportunity cost.In the fourth part, the service circle theory is creatively proposed; the services section is scientific divided into different areas and its function is clearly positioned; the relationship between services section development and commodity differentiation is clarified; and then empirical methods are applied to prove the contributions of the development of services section to the efficiency of production factors, the structure optimization of production factors allocation, the improvement of national income distribution structure, the transaction cost and operating cost savings, and further the social welfare improvement; the differentiated game model is studied two indicators including the indicator of cross-level and the indicator of information symmetry related to service providers and target customer groups.In the fifth part, some negative influences of commodity differentiation such as its augmenting the market failure and its decreasing the scale effects are analyzed; the relationship between commodity differentiation and parts standardization are discussed; approach to optimal production scale of differentiated commodity is clarified; relationships between genuine differentiation and false differentiation, between dominant differentiation and recessive differentiation, between long-term differentiation and short-term differentiation, between high value-added differentiation and low value-added differentiation, and between high-end market differentiation and low-end market differentiation are examined; the way to increase the effective supply of commodity differentiation is pointed out; designing thoughts and scientific framework of the regional differentiation strategy are clarified after discussing on the relationship between the implementation of the differentiation strategy and government’s macro-management.