Complementary Goods

Posted in Marketing and Strategy Terms, Total Reads: 593

Definition: Complementary Goods

A product is considered to be a complementary product when its use is related or linked with the use of another good. A complementary good shares beneficial relationship with another product offering.

Sometimes a complementary good has no or less value when consumed alone, but when combined another good or service it adds to the overall value of offering. In economic terms, a good is a complement when the increase in its price leads to a decrease in the quantity demanded of the other good. Two goods are considered to be substitutes if an increase in the price of one leads to an increase in the quantity demanded of the other.

This graph is the price consumption graph of two goods X and Y. Here, the downward sloping portion of the curve denotes that the products X and Y are substitutes, as the reduction in a consumption of one is followed by an increase in consumption of the other. The upward sloping portion of the curve depicts that the goods behave as complementary goods. An increase in consumption of one leads to the increase in the consumption of the other.

Example: For example, automobiles and petrol are complementary goods. Because they tend to be used together, a decrease in the price of petrol increases the quantity demanded for automobiles. Similarly computer and computer software are complementary goods.



Looking for Similar Definitions & Concepts, Search Business Concepts