Blackwell Reference Online

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In contrast with substitute products , complementary products are those which have a negative cross‐price elasticity of demand. As with substitutes, there can be “strong” or “weak” complements. The strategic importance of complementarity is somewhat inferior to that of substitutability. Nevertheless, complements raise the question of a firm's scope of activities. A number of decisions have to be made by a firm engaged in the production of complementary goods, namely with respect to control over complementary products (and industries), pricing, and the combined sale of complementary goods (bundling). The most important complements are those which have a significant impact on each other's position (e.g., in terms of cost or differentiation), and those which are associated with each other by the buyer. There are a number of advantages that can be gained by being active in and controlling complementary products/markets, including economies of scale in marketing (as demand for one good also boosts demand for the other), and other shared activities such as logistics ( see economies of scope ). Controlling complements, however, may have its own problems. The two most important ones are that the industry of the complement may not be as attractive as that of the base good, and that the organization concerned may not have the skills, abilities, or any relevant competitive advantage ... log in or subscribe to read full text