Definition: Complementary goods are products that may be used together with other products that enhance their features.
What Does Complementary Goods Mean?
What is the definition of complementary good? A product or service is termed complementary when it produces a more desirable benefit when used together with another product or service. It also describes a product or service which must necessarily be used together with another product or service. If two goods must be paired to function, then they are considered complements of each other.
In economics, the movement of the prices and demand of complementary goods have a negative relationship; if the price of a good or service increases, the price of its complement decreases. This is because customers will buy less of the complement whose price increased, making the demand for the other complement to fall. It must be acknowledged though, that some companies producing complement goods use the price of one to affect the sale of the other; by reducing the price of one complement good and maintaining the price of the other, customers buying more of the reduced complement will equally buy more of the other complement since they must be used together.
Example
A classic example of this is printers and cartridges. When the price of printers falls, consumers will generally buy more printers and cartridges as well. The opposite is also true. If Hewlett-Packard (HP) wants to sell more cartridges, it can reduce the prices of its printers. As more consumers buy more printers, more cartridges will be purchased even if the prices of its cartridges stay the same.
Apple sells more AirPods, screen protectors, and other accessories as more iPhones are purchased. Even though the most important accessories are always included in the box, others like a case must be purchased separately. Cars and fuel/gas are also complements.
Summary Definition
Define Complementary Goods: Complementary good means a product that is interrelated with another product and can be used with or accompanying another product.
