This chapter is devoted to the study of competition and its effects on product differentiation in a vertically differentiated market. Two variants of the same product are vertically differentiated when, sold at the same price, all consumers prefer to buy the first rather than the second. One of the main reasons why goods are vertically differentiated is the disparity in income in the population. There are luxury variants and standard variants of the same product because there are consumers who have a high enough income to buy the high-quality variants, while other consumers are satisfied with the standard variants.