Loading the player...

What is a 'Complement'

A complement refers to a complementary good or service that is used in conjunction with another good or service. Usually, the complementary good has little to no value when consumed alone, but when combined with another good or service, it adds to the overall value of the offering. A product can be considered a complement when it shares a beneficial relationship with another product offering.

BREAKING DOWN 'Complement'

Complementary goods have connected demand that's referred to as elasticity of demand. This means that if the price of a good increases, the price of the complement decreases, seeing as price and demand are highly elastic. This is because when the price of a good rises, demand for its complement falls due to the fact that consumers don't want to use the complement alone.

This is in contrast to substitute goods, which are different products or services that satisfy the same consumer needs. They can, therefore, replace each other rather than complement each other. For this reason, if the price of a good goes up, the demand for a substitute good also goes up, and vice versa.

General Examples of Complementary Goods

For example, if the price of hot dogs rises, it causes a decrease in the demand for hot dog buns. Since the price of hot dogs has an inverse relationship to the demand for hot dog buns, they are considered complementary products. Additionally, complementary pairs are not two-sided and often have one-sided effects. Using another example, if the price of car tires decreases, it doesn't necessarily increase the demand for cars. However, if the price of cars decreases, it does increase the demand for car tires.

Real World Example of the Rise of a Complementary Good

Often times it is more beneficial to be a complementary good versus a substitute good. As of July 22, 2016, Netflix, Inc. is considered a substitute good for traditional cable. However, with the potential unbundling of cable channels in the future, financial analysts believe that Netflix may move from a substitute good to a complementary good.

The unbundling of channels refers to the ability for consumers to pick and choose which cable channels they pay for, rather than being required to purchase an entire cable package. The belief that Netflix may become a complementary good to cable once it decides to unbundle has caused analysts to estimate that the company's international subscribers could grow to reach 98.8 million by 2020 and 165 million by 2025. Unbundling reduces the overall cost of cable, and more users are expected to subscribe to Netflix in addition to their chosen cable channels.

RELATED TERMS
  1. Complementary Currency - CC

    A currency used in combination with other currencies, such as ...
  2. Substitution Effect

    The idea that as prices rise (or incomes decrease) consumers ...
  3. Cross Elasticity Of Demand

    An economic concept that measures the responsiveness in the quantity ...
  4. Substitute

    A product or service that a consumer sees as comparable. If prices ...
  5. Elastic

    An economic term referring to the change in behavior that buyers ...
  6. Unbundling

    The process of taking over a large company with several different ...
Related Articles
  1. Insights

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  2. Trading

    An Introduction To Complementary Currencies

    There are alternatives to national currencies. Discover complementary currencies and how they work.
  3. Investing

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  4. Investing

    What's a Substitute?

    A substitute is a good that satisfies the same needs as another.
  5. Insights

    Understanding the Substitution Effect

    The substitution effect is an economic term used to describe consumer behavior relative to price or income changes.
  6. Small Business

    3 Predictions for TV in the Next 10 Years

    Understand current technological trends in the TV industry and what has changed in the past. Learn about three predictions regarding the future of TV.
  7. Insights

    What is Demand?

    Demand is the economic term for the cumulative wants and desires of consumers as they relate to a particular good or service. Generally speaking, if all other factors remain constant, as demand ...
  8. Investing

    Netflix Makes a Big Deal With a Sometime Rival

    Netflix (NASDAQ: NFLX) and the cable industry may be able to coexist. The streaming service, which already has a deal with Frontier Communications (NASDAQ: FTR) to offer its service directly ...
  9. Investing

    Price Elasticity Of Demand

    Price elasticity of demand describes how changes in the cost of a product or service affect a company's revenue.
RELATED FAQS
  1. What are some examples of demand elasticity other than price elasticity of demand?

    Learn about income elasticity of demand and cross elasticity of demand and how to interpret these two measures of demand ... Read Answer >>
  2. Which factors are more important in determining the demand elasticity of a good or ...

    Learn about demand elasticity of goods and services and the main factors that influence the elasticity of demand. Read Answer >>
  3. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  4. What factors influence a change in demand elasticity?

    Learn about demand elasticity, factors that affect the demand elasticity of a good or a service, and how these factors affect ... Read Answer >>
  5. What types of consumer goods demonstrate the price elasticity of demand?

    Learn how the price elasticity of demand is more sensitive for some types of consumer goods than others, and see what factors ... Read Answer >>
  6. Should a small business test the substitution effect on its products before launch?

    Explore the substitution effect and find out how small businesses may evaluate how this principle impacts their own products. ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center