captive market

Captive Market

Captive Market Jonathan Poland

A captive market is a market where a group of customers is forced to buy from a limited number of suppliers because they have no other viable options. This typically occurs when there are barriers to entry that prevent other suppliers from entering the market, such as high start-up costs, strict regulations, or exclusive contracts.

In a captive market, customers are often unable to switch to another supplier even if they are unhappy with the quality or price of the products or services they are receiving. This lack of competition can lead to higher prices and lower quality, as suppliers have little incentive to improve their offerings or compete on price.

For example, a small town that is served by only one grocery store may be considered a captive market, as residents have no other options for buying groceries. In this situation, the grocery store may be able to charge higher prices and offer lower quality products because there is no competition from other suppliers.

Overall, a captive market is a situation where customers are forced to buy from a limited number of suppliers because there are no other options. This lack of competition can lead to higher prices and lower quality.

Communism

In a communist society, the state is the only entity that owns capital such that a bureaucratic elite control all production. This results in a universal lack of alternatives such that customers have no power over suppliers.

Monopoly

A single supplier that completely dominates the market for a product or service. For example, a nation with a single airline such that there is only one carrier on many routes. Left unregulated, this allows the monopoly to charge high prices, demand unfair terms and provide poor service.

Oligopoly

A market controlled by a few large suppliers such that their is significant temptation for these suppliers to fix prices or engage in other anti-competitive practices. For example, a nation that only has three mobile telecom firms.

Last Mile

The last mile is the ability to reach the customer at or near their home or office. This often creates captive customers. For example, a nation may have three telecom companies but only one may offer a wired internet connection in your apartment building or neighborhood. This creates large pools of customers who may be captive to high prices and poor service.

Shortages

Shortages can create temporary captive customers. For example, a reseller who aggressively purchases a new technology that quickly sells out such that they are the only supplier for a period of time. This is a type of rent seeking as the supplier adds zero value to the supply chain but dramatically increases prices.

Niche Goods

In many cases, a customer is captive because they have needs and preferences that represent a small market with few suppliers. For example, a consumer who will only buy shampoo made from 100% organic olive oil may have few choices such that they may be captive to a single product.

Geographical Monopoly

A monopoly in a single location such as the only grocery store in a remote town. In some cases, this is based on customers who are literally captive such as the passengers waiting for flights in an airport. It is common for price fixing to occur in this situation if competition laws aren’t enforced.

Non-Profit Monopoly

An organization that is ostensibly non-profit may exercise a monopoly and act in a commercially aggressive way. For example, the organizing committee for an international sporting event may effectively have a monopoly over a sport or collection of sports such that they charge high fees and prices and are unresponsive to criticisms from athletes, fans and the communities they impact.

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