CONCEPT OF COMPLEMENTARY GOODS

 

Learning Contents:                                                            

·         Meaning of complementary goods.

·         Characteristics of complementary goods.

·         Types of complementary goods- strong and weak complements with examples.

Complementary goods

Complementary goods are those goods that are used together i.e. consumption of one commodity depends upon the consumption of the other. In simple words, goods which jointly create the demand. Examples of such goods are car and petrol, Phones and sim cards, needle and thread, bikes and bike helmets, etc.

Characteristics of complementary goods

1.  Complementary goods are consumed together: Complementary goods are the goods whose demand is tied to the demand of another good. Such goods have no value if consumed alone. For e.g. Car has no value when it has no fuel.

2.  Positive utility when consumed together: A consumer enjoys positive utility when these goods are consumed together. They add value to another or a good that cannot be used without each other.

3. Complementary goods have a negative relationship with each other: There exists an inverse relationship between price and demand of complement goods. Fall in the price of one causes an increase in the demand of the other and a rise in the price of one causes a decrease in the demand for the other. For e.g. if the price of car increases, it will not only decrease the demand of car but also decreases the demand of fuel as well.

4.   Quality interdependence: The utility derived from one product depends not only on its own quality but also on the complement’s quality.

5.  Driven by Psychological Phenomenon: Consumption of complementary goods is also based on psychological forces. It forces a consumer to make the consumption of other goods together even it is not needed. For e.g. bundling of pizza and soft drink.

6.  Technological Driven: Complementary goods are technology-driven. Technology-based products also go together. For e.g. A more advanced operating system delivers better performance only if the microprocessor is capable of handling the increase in code complexity.

      Examples of Complementary goods

Smart phones and Apps	Shoes and Insoles
Petrol and Car	Computer machine and software
Television and Cable	Cars and Tiers
Tennis ball and Tennis rackets	Printer and Ink Cartridges
DVD  and DVD Player	Cereal(cornflakes) and milk
Phones and simcards	Play stations and games
Pencils and Notebooks	Movies and popcorns
Pen and Ink	Shoes and polish
Pencil and sharpener	Guns and Bullets
Lights and battery	Electricity and electrical appliances
Cosmetics and cosmetics bag	Coffee beans and coffee paper filters
Razors and Blades	Cake and Icing
Automobile and insurance	Toothbrush and Toothpaste

 It is very important to understand that to what extent complementary goods are close to each other. If a product has no use without another, that means their degree of closeness is very high and vice versa. To understand this, we classify the complements into strong complements and weak complements.

      

Strong complements:

They are the goods that are closely related to each other. A consumer has to consume both the goods to make consumption possible or fruitful. These are known as strong complementary goods because they are pretty useless without one another. They have high cross elasticity of demand. A pair of shoes is the best example of strong complements. Another example could be car and tier. There exists a strong relationship between car and tier. When the price of car rises, the demand for tier will also fall.  If the price of Android Phones increases, it will negatively affect sales and therefore reduce demand for Android Apps.

 Examples of Strong complements

Lock and Key

Flashlights and Battery

House and its Doors

Razors and Blades

Car and Tier

Pair of shoes

Shoe and Polish

Weak complements:

They are the goods that are not closely related to each other. Consumption of one good without another is also possible. They have a low cross-elasticity of demand that means they respond to price change in a very limited way. For instance, if the coffee price rises, it will only have a very less impact on reducing cream's consumption.

 Examples of weak complements 

Movie and Popcorns

Cereal(cornflakes) and milk

Coffee and Cup

Pencil and Notebook

Smartphone and Case cover.

Cosmetics and Cosmetics bag   

QUESTIONS BASED ON COMPLEMENTARY GOODS

Choose the Correct Answer

1. Complementary goods are those

a. that are consumed jointly

b. that are consumed one in place of the other

c. for which demand increases when the price of its complementary goods increases

d. for which demand decreases when the price of its complementary goods decreases

2. Examples of complementary goods?

a. Pencil and Erasers

b. Car and Tier

c. Smart phones and Apps

d. All of above

3. If two goods are complementary to each other; when the demand for one increases, the demand for the other will most likely?

a. Increase

b. Decrease

c. Stay same

d. Can’t be determined

4. Which of the following pairs of goods are highly related to each other?

a. Sandwich and Soft drink

b. Pencil and Notebook

c. Shoe and polish

d. Mobile and case cover

5. Which of the following best describes about complementary goods?

a. consumed together

b. generates positive utility when consumed together

c. Driven by psychological forces

d. All of these

Answers:

1. a 2.d 3.a 4.c 5.d