Definition of complementary goods
Complementary goods which are used together. For example:
- DVD player and DVD disks to play in it.
- Tennis balls and tennis rackets.
- Mobile phones and mobile phone credit for making calls.
- iPhone and Apps to use with an iPhone.
- Petrol and car.
Complementary Goods and Cross Elasticity of Demand
Complementary goods will have a negative cross elasticity of demand. If the price of one good increases, demand for both complementary goods will fall. The more intrinsically linked the goods are, the higher will be the cross elasticity of demand.
If they are weak complementary goods then there will be a low cross elasticity of demand.
The opposite of a complementary good is a substitute. e.g. a substitute to petrol car, is a car running on gas or electricity.