Open vs. locked markets
Courtesy of European Commission
Competition is the normal, natural practice in all areas of business and economics. Choice drives competition and creates excellence.
A locked – or tied – market on the other hand is unnatural. It creates monopolies that benefit a select few companies at the expense of consumers. And it has negative consequences on a number of factors that directly impact entire industries in their ability to innovate, ensure quality, and offer a choice of goods at reasonable prices.
Practices that create an exclusive tie between products in order to exclude competition are thus heavily restricted by law in nearly all sophisticated economies.
Locked markets with ties between products provide specific companies with an unfair advantage over their competitors and customers. But how does that work?
Imagine for example that the manufacturer of your favorite car had its own petrol stations. And that if you wanted to buy the car of your choice, you would have to sign a contract stating that you would only buy fuel from said manufacturer.
The manufacturer could then raise the price for fuel at will – because he would know that you have to come back to him for fuel for the entire time you own one of his cars. This is a locked – or tied – market.
Locked markets are unfair for competitors. But why should customers care? Because open markets bring about a number of benefits:
Innovation
Open markets create an environment of competition, which in turn forces companies to innovate to stay ahead of their competitors. Thus, in an open market, customers benefit from ever new, innovative products and services.
Quality
In a competitive environment, quality is often a deciding factor when having to choose from two similar products. Thus, in an open market, companies will always strive to provide customers with the best possible quality at a certain price level.
Choice
In an open market, customers can choose from different providers and products. This gives them flexibility – for example in purchasing – that they do not have in closed markets. In other words, customers are less dependent on their providers. And, of course, consumers can choose from a broader range of products!
Price
In a locked market, prices are higher than in an open market, where several competitors are vying with each other for customers. Moreover, in a locked market, prices are non-negotiable because the provider knows that his customers are dependent on him.
