What Is a Captive Market?

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 captive market disadvantages is that no competition usually translates into higher than usual prices.

Captive Market vs. Monopoly

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 you go to the movie theater, you must 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. But you must buy the movie theater’s products if you want to enjoy concessions while watching the movie. 

As you can see, that is far more limited than a monopoly whose reach could be nationwide or even larger. A captive market is similar to a monopoly, but it operates within a very limited space.

Real-World Captive Market Examples

We’ve already talked about movie theaters. Here are other examples of captive markets:

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

Captive Market Considerations

If you’re the lucky supplier in a captive market, a major advantage is that you can set prices however high you would like. But what about everyone else?

The disadvantages of a captive market include:

• 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 you can get your product on the shelf within the captive market, you’re going to miss out on potential windfall profits. 

As a startup business, it’s important to do lots of research into your market. Think about who’ll be your potential customers and competitors. Further, think about the context in which customers will shop for and purchase your products. Finally, be aware of the market conditions and how they might work for or against your business. 

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 the supplier in that location. In contrast, monopolies are where there is only one supplier or seller in a much larger market.