Substitutes & Complements: How Uber Accidentally Boosts Lyft

Pepsi loves it when Coke gets expensive.

3 min readQuick check inside

The big idea

Substitutes replace each other, so when one gets pricier, demand for the other rises. Complements go together, so when one gets pricier, demand for both falls.

When Uber turns on surge pricing, many riders open Lyft instead. At the same Lyft price, more people now want Lyft rides, so Lyft’s demand curve shifts right. Uber and Lyft are substitutes. So are Coke and Pepsi, and beef and chicken.

Complements are the opposite. Cars and gasoline, peanut butter and jelly. If gas prices spike, people buy fewer gas-guzzling cars. A price rise in one shifts demand for its partner left.

This is why businesses watch their rivals’ prices as closely as their own. A competitor’s price hike can be the best marketing you never paid for.

Spot it in the wild

SodaWhen Coke raises prices, Pepsi doesn’t have to do anything to sell more.
Fast foodMcDonald’s gets expensive? Plenty of people head to Burger King instead.
GamingCheaper consoles boost demand for games, because they’re complements.

Quick check

Tap an answer.

The price of hot dogs rises. What happens to demand for hot dog buns?

Hot dogs and buns are complements. Fewer hot dogs bought means fewer buns needed, so demand for buns shifts left.

Keep watching