Is the market structure of the coffee industry in India a monopolistic competition? If no, which market structure is it?

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gracephills eNotes educator| Certified Educator

Monopolistic competition is a type of imperfect competition in which firms sell products that are differentiated from those of their competitors.  Product differentiation is typically achieved by monopolistic firms through the branding of their products with the use of logos and slogans, labels, and product packaging.

The market structure of the coffee industry in India is a monopolistic competition for the following reasons:

Product Differentiation - The coffee sold by each firm in India's coffee industry is differentiated by branding. Therefore, each coffee firm sells differentiated beverages such as hot chocolate, lattes, teas, espressos, and cappuccinos in labeled coffee cups and packaging. Furthermore, differentiated toppings such as whipped cream, sprinkles, and chocolate drizzle as well as differentiated pastry items such as muffins, soups, and sandwiches may also be offered.

Market Power - Each firm has some degree of market power in the coffee industry. Market power enables each firm to have control over their decision-making process in regards to the quantity of coffee to be produced and the selling price of each cup of coffee.  Therefore, each firm produces at a level that ensures profit maximization. For example, CoffeeHouse located in East India may choose to sell their dark coffee beverages for $1.50, whereas, CremeBeans located in the western part of India offers dark coffee beverages for $1.95.

Asymmetric Information - Information in the market is not perfectly distributed amongst sellers and buyers; as such, the price offered in coffee shops blocks away from each other could be different. For example, locals know the cheapest coffee shop in their community but visitors would not readily have access to this information.