Week 3: complementary products a

1. Complementary products:    U(A+B)>U(A)+U(B)

Complementary effect: when A price drops, the demand for B increase.

1) bundle products

2) substitute products might also have complementary effect

The price cut of A  1) might attract more customers to the market, then the market size will grow

Generic Strategy

1. Support the supplier of the complementary products

2. Produce the complementary products by yourself: internalize the positive effects (externalities) that complement each other.

 base product+ complementary products

idea: product A sells at a small margin (even loss) to increase the sales of B (high margin) 

advantage: make more profit by intelligent pricing

risk: customer doesn't buy product at all

3. Bundling: sell as a package

4. Increasing lock-in: users have switching cost when they switch from A to another substitute.  (电话号码？）

有些公司可能在某个领域里是竞争者，另外其他领域里却是合作者。如，索尼和苹果。