Complement good

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A complement or complementary good is defined in economics as a good that should be consumed with another good; its cross elasticity of demand is negative. This means that, if goods A and B were complements, more of good A being bought would result in more of good B also being bought. An example of complement goods is hamburgers and hamburger buns. If the price of hamburgers falls, more hamburger buns would be sold because the two are usually used together.

A perfect complement is a good that has to be consumed with another good. Many goods in the real world exhibit characteristics close to perfect complementariness. An example would be a left shoe and a right. Because of this, shoes are naturally sold in pairs, and the ratio between sales of left and right shoes will never shift noticeably from 1:1.

The degree of complementariness, however, does not have to be mutual; it can be measured by cross price elasticity of demand. In the case of video games, a specific video game (the complement good) has to be consumed with a video game console (the base good). It does not work the other way: a video game console does not have to be consumed with that game.

The opposite of a complement good is a substitute good, a good which substitutes for another; since in the preference structure of the consumer or consumers who view the two goods as substitutes, the two are equal in utility. It would be unnecessary for the two to be purchased at the same time, the opposite of the case for complements.

In marketing, complementary goods give additional market power to the company. It allows vendor lock-in as it increases the switching cost. A few types of pricing strategy exist for complementary good and its base good:

• Pricing the base good at a relatively low price to the complementary good - this approach allows easy entry by consumers (e.g. consumer printer vs ink jet cartridge)
• Pricing the base good at a relatively high price to the complementary good - this approach creates a barrier to entry and exit (e.g. golf club membership vs green fees)

[edit] See also

• Razor and blades business model
• list of economics topics
• consumer theory
• strategic complements
• Interrelated Demand and Supply

Types of goods public good - private good - common good - common-pool resource - club good - anti-rival goods rivalrous good and non-excludable good complement good vs. substitute good free good vs. scarce good, positional good (non-)durable good - intermediate good (producer good) - final good - consumer good - capital good. inferior good - normal good - ordinary good - Giffen good - luxury good - Veblen good - superior good search good - (post-)experience good - merit good - credence good - demerit good