The impact of prime goods price inflation on complementary goods demand

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Apurva Dhamankar

10/22/20232 min read

In the complex network of economic influences, the relationship between supply and demand is a fundamental driver of market dynamics. Complementary goods, those items consumed together, share a unique relationship where the demand for one affects the demand for the other. When inflation affects the prices of prime goods, it ripples through the market, impacting not just the targeted items but also their complementary counterparts.

Ever noticed how when the price of something you really like goes up, suddenly you can’t afford it anymore? Well, that’s what happens when prices of important things, like smartphones or cars, increases due to inflation. But here’s the twist, it doesn’t stop here. When the price rise, they also affect the stuff that goes with them, like phone cases or gasoline.

Imagine this: You love your smartphone, but suddenly it becomes super expensive. You might decide to buy a cheaper one instead. And guess what? The accessories made for that specific phone might not sell well because fewer people can afford the costly phones. The same goes for cars and their accessories or even video game consoles and games. It’s all connected!

Now, think what happens to business. If people aren’t buying these extra things because the main product are too pricey, Companies lose money. This can lead to job losses and even affect the economy as a whole. The chain reaction doesn’t stop-it goes from you to the shops to the companies making these products.

To navigate the challenges posed by the inflation induced shift in complementary demand, business must adapt swiftly. Innovation, both in product offerings and pricing strategies, becomes crucial. Company can explore options such as bundling complementary products at a discounted rate or introducing budget-friendly alternatives to maintain consumer interest and stimulate demand. So, what can business do? They have to be smart. They might start selling phone cases and phones together at a lower price or create affordable version of popular gadgets. This way, people can still buy what they need without burning a hole in their pockets.

In the end, It’s like a big puzzle. When one-piece moves, all the others have to adjust too. Understanding this connection helps us see why price matter to all of us. So, next time you see prices going up, remember, it’s just not one thing getting expensive; It’s about a bunch of things being affected, and that’s how the world of buying and selling works!

Thank you.

Regards,

Swapnil Verma,

Kautilya, IBS Mumbai.

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