Captive Market Definition

What Is a Captive Market?

In a captive market, the consumer has no choice about what to buy or from whom. The circumstances force them to buy from a single supplier at a price set by that supplier. One of the main disadvantages of a captive market is that no competition usually translates into higher-than-usual prices.

Captive Market vs. Monopoly

Technically speaking, a captive market is not the same as a monopoly, though the two terms seem similar on the surface.

In a monopoly, there are no other suppliers out there except for one. The customer has no choice but to buy from one seller because there aren’t any alternatives. In the U.S., historical examples of monopolies are the American Tobacco Company and the Standard Oil Company.

By contrast, in a captive market, it’s typically the conditions or place within which the seller sells the goods that limit the buyer’s choices. For example, when a person goes to the movie theater, they generally have to buy candy, popcorn, and refreshments from the movie theater — at movie theater prices. Sure, there are other options for popcorn, pizza, and soda out there for far better prices; the local grocery store, for example, probably has a much better price. But moviegoers have to buy the movie theater’s products if they want to enjoy concessions while watching the movie. 

In short, a captive market has a more limited reach compared to a monopoly, which could have a national reach or even larger. A captive market operates in a more limited space.

Real-World Captive Market Examples

Movie theaters are just one example of a captive market. Here are a few others:

• Cruise ships — on a cruise ship, guests can’t physically go someplace else and buy other products or services from another supplier. 
• Theme parks — at such parks, guests are stuck paying $10-$15 for a single hot dog unless they pack a lunch or don’t eat. 
• Museums — at a museum, guests typically cannot bring in outside food and drinks, forcing them to pay high prices for food and merchandise. 
• Sports stadiums — as with theme parks, most guests will have to pay a hefty fee to buy food, drinks, and merchandise.

Some of these places allow patrons to bring in their own food, but they know that most people won’t plan ahead, and they’ll end up paying for the $15 hot dog anyway.

Captive Market Considerations

A captive market has its advantages, especially for a business owner who has a captive market. They can set prices almost as high as they’d like. But what about everyone else? Understandably, there are some drawbacks to a captive market scenario, including:

• For buyers: they must buy from the supplier at the inflated price set by the supplier or go without the product they want. 
• For other businesses: unless a business owner can get their product on the shelf within the captive market, they’re going to miss out on potential windfall profits. 

As a startup business, it’s important to do lots of research into the target market. Entrepreneurs will need to think about who their potential customers and competitors will be. They’ll also need to consider the context in which customers will shop for and purchase their products. Finally, they’ll also want to consider the local market conditions and how those conditions will work against the business (or help it).

Summary: Captive Market Definition

Captive markets are usually smaller markets where the buyer faces a severely limited number of competitive suppliers and has no meaningful choice but to purchase goods from a supplier in their location. In contrast, monopolies are where there is only one supplier or seller in a much larger market. 

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