Captive Market

A captive market is a market that is less competitive due to the limited number of suppliers. As a result, consumers get limited choices and are often obliged to pay a high price for a product or give up on the purchase decision entirely. Hence, it is also known as a near-monopoly instead of a monopolistic market with entry barriers.

Sellers analyze this market to decide how much to supply to increase their profits, thereby increasing their production capacity and nullifying competition.  It can be one of two types – non-captive and semi-captive markets based on the alternatives accessible to consumers.

• A captive market is a market situation with few sellers, which reduces the alternatives available to the consumers.
• Although similar to a monopolistic market, this market does not encourage a natural monopoly by exerting strict controls over the market.
• The dominant seller in the market usually captivates the market by offering quality products and controlling the price, supply, substitutes, and complementary products.
• It can be non-captive or semi-captive based on the product or service alternatives accessible to consumers.

A captive market is a variation of a monopolistic market, where fewer sellers in the market have less competition between them. Fewer producers mean less variety of products and even lesser substitutes. So, the sellers sell their goods and services at the optimum price.

Buyers have the only option of purchasing from a single producer. Thus, the price maker seller controls the market and, in most cases, exploits the buyer by offering less and profiting more. Some examples are branded automobile companies like Audi and Tesla. 

A market like this can occur when a seller owns an entire unit, like malls, airports, or cinema halls. Other factors creating such a market may include unavailability of resources, shortage of supply, special or unique products, branded or limited editions, etc. 

Usually, the food and beverage industry uses the concepts like semi-captive and non-captive markets. It can be based on the number of restaurants in an area, the demand, the type of cuisine offered, etc.

A captive market can be of two types based on the choices available to consumers in it: 

1. Non Captive

The market with good consumer choices is called a non captive market. Many sellers offer products and services of good quality at competitive prices. Consumer demand determines production, so the forces of supply and demand control such a market. 

As the supply is more, most markets today are non captive. For instance, many automobile companies offer a variety of cars. Customers can choose a vehicle according to their needs based on the type, price, and specifications. Similarly, there are many companies selling apparel, electronics, etc.

2. Semi Captive

In a semi-captive market, sellers offer various options to the customers initially. However, external factors like location, price, etc., limit them. As a result, customers eventually have only limited choices at their disposal. Under-developed areas and villages depict this scenario.

Consider a city where automobile company X sells three cars. Customers who want to buy a better car other than X have an open choice to buy it but should travel to the neighboring towns. However, due to the distance and time constraints, customers opt to buy from company X. 

Here are some captive market examples to understand the concept better: 

Example #1 

The restaurant Z offers a remarkable yet limited variety of food, so the price of its highly demanded dishes will be high. Consumers will have a lack of choice if no other restaurants offer the same unique type of dishes. They cannot bargain. They will have to pay a high price to eat at restaurant Z or go home.

Example #2 

Google is a multinational company with 91% of the worldwide search engine market share, catering to more than 70% of the world population.

Considering the internet space, Google does have a near-monopoly but not a forced monopoly. It is because, despite other choices, consumers find Google versatile, reliable, and easy to use. Furthermore, it provides general computing and browsing services. In addition to its search engine, it offers cloud storage, communication services, payment platforms, and location services. 

Example #3

Another prominent example is government companies and institutions. For example, the United States Postal Service (USPS) is the only institution in the U.S. that provides postal services.  Therefore, people must deal with the lax delivery and high costs of sending and receiving packages. 

Captive and Monopolistic Markets are two vital participants, the comparison between which has been made in detail below:

Similarities

Here are some of the features common to a captive and a monopolistic market:

• Single/ few sellers
• Little competition
• Limited choice
• High fixed prices
• Exploitation of buyers
• No substitutes
• Market controlled by the seller

Dissimilarities

The main difference between captive and monopolistic markets is entry barriers to the market. The monopolistic company restricts the entry of other firms as the new entrant might offer the same product at a lower price with good quality in the market. Therefore, it can disrupt the profits earned by the monopoly. However, other firms are free to enter captive markets, and the monopoly happens naturally. 

A single airline company in a country gets the power to charge higher airfares. It would create a supply-demand issue if it had only five airplanes running in and out of the country. If the airplanes are unavailable, the customers' travel plans will be restricted, and they will not be able to travel at their convenience. 

This has been a guide to Captive Market & its Meaning. Here, we explain its examples, types, and its similarities & differences with the monopolistic market. You can learn more from the following articles - 

• Competitive Market
• Supply vs Demand
• Monopoly vs Monopolistic Competition