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A captive customer is a marketing[1] and regulatory concept[2], describing a buyer or user that is unable or unwilling to change the provider of goods or services due to high switching costs, provider being a natural monopoly, or some other circumstances that preclude substitution. This leads to a situation where the provider has the pricing power.[citation needed] A classic 19th-early 20th century example is a major originator of transit, e.g., a mine or granary located at the end of a railroad spur line, where the carrier could name its own tariffs. Other examples are offered by the suppliers of the natural gas and water (although in the latter case it is possible, at least in theory, drill one's own well).[2] For example, US courts have long held that for the gas industry, a captive customer is the one "who must use gas and can only obtain it from one provider".[3]
Regulation[edit]
From a regulatory standpoint, the producer's pricing power is considered undesirable.[citation needed] Technological and economic changes, like introduction of the long-distance trucking and emergence of airlines helped alleviate some problems with captive customers.[4] Large enterprises, facing the captive customer situation with utilities, can provide their own supplies of electricity and heat (cogeneration facilities), communication networks, natural gas supply deals. However, provision of core services (gas, electricity, basic communications) for residential and small business customers remains an issue and is therefore regulated.[5]
The public utility customers are typically captive. For example, Federal Energy Regulatory Commission explicitly defined captive customers as "wholesale or retail electric energy customers served under cost-based regulation".[6]
Marketing[edit]
From the marketing standpoint, captive customer base is good.[citation needed] Technology creates a way to get such base through the vendor lock-in.[citation needed]
References[edit]
- ^ Rowe & Barnes 1998, p. 288.
- ^ a b Jones 1988, p. 1094.
- ^ Harrison, Morgan & Verkuil 2004, p. 148.
- ^ Jones 1988, pp. 1094–1095.
- ^ Jones 1988, p. 1095.
- ^ Federal Energy Regulatory Commission 1979, p. 30,349.
Sources[edit]
- Jones, Douglas N. (1988). "Regulatory Concepts, Propositions, and Doctrines: Casualties and Survivors". Journal of Economic Issues. 22 (4): 1089–1108.
- FERC Statutes & Regulations. FERC Statutes & Regulations. Federal Energy Regulatory Commission. 1979. Retrieved 2024-05-28.
- Rowe, W. Glenn; Barnes, James G. (1998). "Relationship Marketing and Sustained Competitive Advantage" (PDF). Journal of Market-focused Management. 2 (3): 281–297. doi:10.1023/A:1009707818053.
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