Complementary Good

When two goods are complements, a rise in the price of one tends to reduce demand for the other. If cars become more expensive, fewer people buy them, which also reduces demand for petrol, tyres and car insurance. This gives complementary goods a negative cross-price elasticity.

Other examples include smartphones and apps, coffee machines and coffee pods, tennis rackets and tennis balls, and flights and hotel rooms.

Businesses often use complements in their pricing strategies. A company may sell a games console at a low price, even at a loss, to build a large base of customers who will then buy profitable games. Printer manufacturers have often sold printers cheaply and earned more from ink cartridges.

Understanding complements also helps businesses predict demand. A rise in new home sales, for example, is likely to increase demand for furniture, appliances and home improvement products.