Monday, April 5, 2010

Complements to Netflix from I-PAD---no I did not misspell "Complements"...

Netflix Stock hits 52 week HIGH!!
Is Netflix a Complementary good to the I-PAD? In economics a good is complement if it is typically used with another good (gas with cars, peanut butter and jelly, textbooks and college classes, etc).  Normally, the definition is as follows---If the price of Good 1 (Netflix APP) increases (or decreases) and the demand for Good 2 (I-PAD) decreases (increases) then the goods are complements.  In a pure sense this should mean that the complement, the App Netflix, should decrease in price and in some small way increase the demand for I-PAD so people have another way to view movies.  However, obviously, the I-PAD is in the drivers seat AND the App Netflix has $0.00 marginal cost (virtually "free" with each additional download), so its price cannot drop any more....OR could it be that as the price of the I-PAD decreases the demand for the complement Netflix APP will increase?  This would make more sense in the true definition of a complementary good...Anyone with a better explanation...I am just a fellow stuggling economics teacher who does not have all the answers... :)
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