Different kinds of markets make the global economy. While some sectors like fruits, vegetables, retail, etc form a perfectly competitive market, some other industries like telecommunication form an oligopoly market.
There is also a monopoly market where only one seller has the capacity to sell the particular product. Producers are the price makers and buyers don’t have any option, other than going with the single seller, for example, automobile companies like Mercedes, BMW, etc. There is also sheer lack of competition and barriers to entry for other firms.
Something similar to this monopoly market is the captive market. An interesting feature of captive market is that although there is no natural monopoly, yet consumers have little choices in front of them and end up taking the product from the one and only seller; thereby being a part of the artificial monopoly.
Products which are readily available in the normal market and can be purchased in a perfectly competitive environment are sold by the limited number of sellers in the given area. This accounts for lesser competition and a monopoly power of the seller to determine the price.
As a result, products available at a cheaper rate in the normal market is sold at extremely high prices in the captive markets. Therefore, in captive markets, consumers are captivated by the limited number of sellers and they are compelled to either buy their desired product only from there or refrain from purchase. Moreover, like monopoly market, captive market exercises barriers to entry.
Above all, people don’t have the opportunity to bargain. They take the price determined by the seller for the same product, which they could have bought from other places by hardcore bargaining. The perfect example is of bags in footpath Vs bags with a brand name in shopping malls.
A captive market can happen due to many reasons. Firstly, it can happen due to the shortage of supply. For example, when vegetables like potato, onion, etc. do not have sufficient yield, its prices surge. At the same time, when products rotten in cold storages, there is the immediate increase in prices.
Secondly, when products possess a unique quality or benefit in them, producers are bound to charge higher prices. Examples can be of high branded commodities, French wines and perfumes and similar products. Thirdly, it can happen when sellers own the entire buying unit, which happens in any shopping mall. Here, as the shops hire their space, they keep their prices high so as to realize their rent amount along with other related expenses.
Examples of Captive Market
1. School Stationery
Every school has its own stationery store from where it supplies all the essential commodities like exercise copies, books, covers, labels, school uniform, tie, belts, chart papers, pens, pencils, badges, bags and other related stuff to its students.
Although each of these products can easily be purchased from outside, yet going by certain strict norms of the schools, students are compelled to purchase these commodities from the stationary unit. Also, as products like tie and belts, copies, covers, etc. resembles the school, and carry its name and logo; it is mandatory for all children to get them from that one and only stationary. In such a situation, despite charging a higher price, students are left with no other option but to get their requisites from the school itself.
Even when it comes to uniform, the school has its own dressmaker charging an exorbitant price for making a regular dress as well as sweaters. Therefore, the buying unit belongs to the school and due to barriers to entry; students end up in being a price taker in the captive market.
2. Food courts in Malls, Airport, Cinema Hall
Prices in the food court of malls vary according to the status of the malls. For example, food prices in ordinary malls are slightly higher than the market price. However, in the posh malls, mostly visited by celebrities and the elite, prices skyrocket.
It is because rent payable to the former category is lower than that of the latter, which is why the food sellers charge an exorbitant amount within the limited area. Moreover, malls have a policy of not allowing outside food. This reduces options for the buyers by default and they are left with no choices except going for a monopoly price.
The captive market is also common in airports and sports arena. Both being costly places, food sellers have to pay a huge rent and do not have adequate competitors within the premise. They, being the sole producers, conduct a monopoly business by keeping prices extraordinarily high. Buyers either have to purchase from them or purchase nothing at all.
As with the cinema halls, food prices are way above those other areas in the same mall. Only a few stalls sell their food at prices, which are beyond the reach of normal commoners. Here also people become captivated by limited sellers and hence accept the price asked for their product.
From the rides to the handicrafts to the eateries, price skyrocket especially in the last few days of any fair. Where the initial price of rides is at 20, pricing in the last few days increases to 40 or even 50. Similarly, where jute products initially cost 100 or 150, their price rises to 300 or more. In such a scenario, buyers don’t have many options. Secondly, the fair organizer owns the entire land and therefore influences the pricing of all units. Thirdly, as fairs are not regular events, prices are higher, by default.
4. Hotel Shopping Arcades
Shopping units often adjacent to or within the hotel premise have an array of products on display, however with a higher price tag. It is because as the stores are within the hotel area, their pricing is influenced by the hotel owners, who in turn give free spaces to various shops against arent. Therefore, to realize the rent amount and make handsome profits, the sellers of these outlets charge exorbitant price from their customers. The latter two, having no other choice become a price taker in the captive market.