Complement

Published Jun 25, 2023

Definition of Complement

Complement refers to two goods that are typically consumed or utilized together. That means the demand for one good is positively related to the demand for the other good. In other words, the demand for one good goes up when the price of the other good goes down.

Example

One common example of complement goods is cars and gasoline. Most drivers need fuel to run their cars, which means there is a positive relationship between the price of gasoline and the demand for cars. When the price of gasoline decreases, more people are willing to buy cars since the cost of running them is lower. Conversely, when the price of gasoline increases, fewer people are willing to buy cars since the cost of running them is higher.

Another example of complementary goods is PB&J (Peanut Butter and Jelly). When consumers purchase peanut butter, they also tend to buy jelly because they are typically consumed together. The demand for jelly increases when the demand for peanut butter increases, and vice versa.

Why Complement Matters

Understanding the concept of complement is vital in marketing, pricing, and sales strategy. Companies need to recognize the relationship of their products with complement goods and adjust their marketing or pricing strategies accordingly. They must also anticipate the behavior of complement goods in the market, such as how changes in the price of one good may affect the demand of others. By recognizing the relationship between complement goods, companies can improve their ability to forecast their sales or revenue and target their markets more effectively.