A complementary good (or service) is one that is used together with another. When the price of a product increases or decreases, this change also affects the demand for the complementary good.
Many producers of mass consumer goods are associated with a certain brand or type of complementary good. For example, clothes washers that recommend a brand of detergent.
A substitute good or service (also called a substitute) is one that is used in place of another. This means that substitute goods compete with each other in the markets.
Among the competing goods, prices are always defined taking into account the competition, since if two products offer the same characteristics but one of them has a significantly higher price, the demand for it will decrease.
Substitute goods are proposed as alternatives to other products that already exist in the market, and use as a sales strategy to highlight some characteristic that the pre-existing product does not have. It can be a lower price, some superior characteristic (flavor, efficiency, etc.) or simply the fact of being a novel alternative.
The substitute goods can be :
- Perfect substitutes : It can be used in exactly the same way and with the same results as the pre-existing good. The user has no motivation to choose the pre-existing one. If the substitute has a lower price, the demand for the pre-existing good will decrease significantly.
- Imperfect substitutes : When two goods can be used for the same purpose, but without the same results.
Examples of substitute goods
- Margarine : Margarine is a good substitute for butter (butter). It was initially presented as a healthier and cheaper alternative than butter (as it is of vegetable origin). However, it has now been discovered that margarine also contains fats that are just as harmful as the fats in butter.
- Fossil fuels : there are different ways of giving energy to the means of transport. For private users, there are three different offers of fossil fuels for their cars: gasoline (naphtha), diesel (diesel) or compressed gas (CNG). Compressed gas has the advantage of its low cost, but it does not give the vehicle independence, since the tank lasts a few kilometers, so it is used by those who use the car in the city (taxis). Diesel is cheaper than gasoline, but diesel-powered cars are more expensive, so it is only worth the investment if the car is to be used for a long time. Gasoline offers independence (since it offers the highest mileage per liter) but costs more.
- Different types of meat : in each region, depending on the livestock in the area, there will be lower prices per kilo for animals that are raised in nearby areas. Although price can be a determining factor when choosing the type of meat, there are currently other types of substitute goods, which appeal not to price but to quality, correct treatment of animals, and certification of being organic.
- Cola drinks : the various cola drinks define their prices compared to the best-selling, to maintain a demand stimulated more by the price than by the quality (flavor).
Examples of complementary goods
- Cars and fuels : the price of various fuels motivates users to buy cars that allow the use of cheaper fuels. On the other hand, the high price of cars prepared to use diesel discourages the use of that fuel.
- Music playback: The formats in which music is played radically changes the demand for equipment. In this way, the players have had to adapt to paste (vinyl) discs, cassettes, CDs, and currently mp3 and other digital formats.
- Audiovisual products : Similar to what happens with music, changes in the technology of audiovisual products change the equipment to play them. The arrival of VHS (video) was replaced by DVD, which is currently being replaced by streaming (online playback), which requires screens to have an internet connection. In addition, there are screens with higher definition that respond to the best definition of the available products.
- Programs and devices : when buying a computer or a Smartphone, those products that can be used with the latest programs and applications are chosen. The constant change in technology encourages the purchase of new products.