Captive market – definition and meaning
A Captive Market is one where the potential buyers have very limited choice. In other words, unless they buy from just one or two suppliers their only other option is not to buy.
In this type of market, the seller has the upper hand. The seller can raise prices without worrying about competitors grabbing its customers.
Captive market on cruise ships
For example, a shop on a cruise ship has no competition. However, 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, you have to buy their products. Sports stadiums and airports also have this regulation. They do not let you consume things that you bought outside.
To be fair, sellers at movie theaters and cruise ships have to compete with sellers in other movie theaters and ships. However, while the passengers are on board and movie viewers are at the theater, they are are ‘captive.’
Captive market – monopolies
In some countries, where there is just one supplier of a product or service, there is a captive market. In Mexico, for example, you can only fill your car with gas (UK: petrol) from a PEMEX filling station.
We call a market with just one seller a monopoly.
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 sales. When you buy the printer, you soon realize that you are stuck with one supplier for your toner.
You cannot buy other toner brands because they do not work on your device. You have become the victim of a monopoly.
A captive market is an example of imperfect competition. Imperfect competition exists in a competitive market where some features are not truly competitive.
There are many possible types of imperfect markets such as a monopoly (just one seller), oligopoly (too few sellers), monopsony (just one buyer), or oligopsony too few buyers.
The market for printer toner
Many companies sell devices and subsequently their spare parts or peripherals. The main device is usually cheap, but the follow-up products are expensive. This is because they have a captive market.
In some franchise businesses, the franchisees can only buy supplies from the franchisor.
Captive market – airport shops
Critics accuse British airport shops of abusing their captive market advantage. They ask passengers for their boarding passes.
They subsequently claim back the VAT on products purchased by people traveling to outside the European Union. VAT stands for Value Added Tax, a type of sales tax.
Critics say that airport shops should pass on those savings to shoppers, instead of pocketing the money.
Ten more captive markets
Below, you can read about ten types of captive markets and a brief description of each one:
Visitors often have limited options for food, drinks, and souvenirs inside the park, leading to higher prices due to the lack of competition.
Stadiums and Arenas
Similar to amusement parks, these venues have a closed environment where food, merchandise, and parking are controlled by the venue operators.
Guests may purchase items at high prices due to convenience or lack of nearby alternatives.
Students are often required to purchase specific editions or titles that are only available through the college bookstore or approved vendors.
Once a user is invested in a particular software ecosystem (like Apple’s iOS or Google’s Android), they are more likely to purchase compatible apps and accessories.
Patients, visitors, and staff may have limited time or access to alternative food options, leading to a reliance on the hospital’s own facilities.
Airline passengers have no other options for food, drinks, or duty-free items while in the air.
Theme Hotel Attractions
Hotels that offer unique themes or experiences may also sell thematic merchandise that guests cannot easily find elsewhere.
Services that lock in customers with long-term contracts or memberships, like gyms or streaming services, create a market for add-ons or premium features.
If a school requires uniforms from a specific supplier, parents and students must purchase from that supplier regardless of the price.
Educational Video – What is a Captive Market?
This interesting video, from our sister channel on YouTube – Marketing Business Network, explains what a ‘Captive Market’ is using simple and easy-to-understand language and examples.