How does the price of related goods influence demand?

Related goods are goods that are bought with another good (complements), or instead of another good (substitutes).

An example of complementary goods is movie tickets and beverages. Often, when someone buys a movie ticket, they will also buy a beverage. Notice that the strength of this relationship changes depending on the product: it is more common for someone to buy a drink on its own—without going to the movies—than for someone to buy a movie ticket and not buy a drink.

The law of demand states that when the price of a good increases, the quantity demanded for that good decreases, and vice versa. So, if the price of movie tickets goes up, people will buy fewer movie tickets. For the theatre, this means that not only will they sell fewer movie tickets, but they will also sell fewer drinks: this shows the complementary relationship between movie tickets and drinks.

An example of substitute goods are two competing movie theatres. If people usually go to the movies at MovieZone or CinePlace, but not both simultaneously, then these brands are strong substitutes for each other. The strength of this relationship is determined by consumer behavior. A consumer who wants to go to the movies is likely to prefer either MovieZone or CinePlace to a different activity, like going to a museum. So museums are a weak substitute for either of the theatres.

As above, the law of demand dictates that if MovieZone raises the price of tickets, the quantity demanded will fall. This effect is amplified if consumers are very willing to switch to CinePlace. For this reason, firms aim to build brand loyalty, weakening the strength of the substitution relationship with competing brands.

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If the price of MovieZone tickets	The quantity demanded for MovieZone tickets	The demand for drinks	The demand for CinePlace tickets
increases	decreases	also decreases	increases
decreases	increases	also increases	decreases
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