What is a captive market? Definition and meaning
A captive market is one where the potential buyers have very limited choice – unless they buy from just one or two suppliers their only other option is to make no purchase at all.
In a captive market, the seller has the upper hand and can raise prices without worrying too much about competitors grabbing its customers.
An example of a captive market could be a shop on a cruise ship. Passengers still need to buy painkillers, toothpaste, diapers (UK: nappies) for their babies, and other basic items. If there is only one shop on the liner, consumers have no choice but to get all their supplies from there.
If you want to eat and drink at the movies, sports stadiums and many airports, you have to buy their products – you are not allowed to pop into a supermarket and bring your food and drink in and consume them on their premises.
Food and drink at the cinema are ridiculously expensive. As they have a captive market, they can virtually charge what they like.
Monopolies enjoy a captive market
In some countries, where there is just one supplier of a product or service – a monopoly – there is a captive market. In Mexico, for example, you can only fill your car with gas (UK: petrol) from a PEMEX filling station.
According to Collins English Dictionary, a captive market is:
“A group of consumers who are obliged through lack of choice to buy a particular product, thus giving the supplier a monopoly.”
Many makers of printing machines have a captive market for toner (ink) sales. When you buy the printer, you soon find out that to replace the empty toner, you can only buy from one supplier, because all other makes do not work on your device. You have become part of a captive market.
Companies that sell devices and then spare parts or peripherals that must be bought from them, tend to charge very little for the main piece of equipment, and then sell their follow-on products at high prices. This is because they have a captive market.
In some franchise businesses, the franchisees can only buy supplies from the franchisor.
Airport shops in the UK have been accused of abusing their captive market advantage. They ask passengers for their boarding passes so that they can claim back the VAT (sales tax) on products purchased by people travelling to outside the EU.
Shops are being told they should pass on those savings to shoppers, rather than pocket the money for themselves.