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Concept
Complementary assets
Summary
Complementarity assets is defined as “the total economic value added by combining certain complementary factors in a production system, exceeding the value that would be generated by applying these production factors in isolation.” Thus two assets are said to be complements when investment in one asset increases the marginal return on the other. On the contrary, assets are substitutes when investment in one does not affect the marginal return of the other.
The production process is described by the production function F(x,y)
, where x
and y
are the amounts invested of the two assets, then it is possible to define formally the elasticity of substitution as
: \sigma_{xy}=\frac{d \ln (y/x) }{d \ln (MRT_{12})}
=\frac{d \ln (y/x) }{d \ln (F_{x}/F_{y})}
If \sigma_{xy}
is equal to 1, the assets are substitutes; if lower, complements; if higher antagonists.
Strategy
In the field of strategy, the
Official source
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