2.6 : Effect of Related Goods on Demand Curve: Complementary Goods

Complementary goods are products that are typically used together, such as PlayStations and its games or gasoline and cars. The price of these goods can significantly impact the demand for their counterparts.

The relationship between the price of complementary goods and the demand for a product is an inverse one:

Price Increase: When the price of one product (e.g., gasoline) increases, it decreases the demand for its complement (gasoline cars), assuming all other factors remain constant.

Price Decrease: Conversely, when the price of one product decreases, it increases the demand for its complement. This concept is known as the complementary goods effect.

Understanding this relationship is crucial for businesses when setting prices and market strategies. For example, offering a bundle deal where purchasing one product includes a discount on its complementary good can increase overall demand and potentially lead to higher sales and revenue.

Therefore, businesses need to consider not only their pricing strategies but also those of their complementary goods when making decisions that could impact consumer demand.