Product diversity in asymmetric oligopoly: Is the quality of consumer goods too low?

We analyse an oligopoly model incorporating horizontal differentiation and quality differences. High quality goods are overpriced and underproduced. W hen the market is fairly well covered, low quality products may be profitab le when their net social contribution is negative, implying excessive entry . In a relatively uncovered market, even low quality goods are underproduce d and there may be underentry. When fixed costs are independent of quality, the market tends to select the right firms. Otherwise, the market may prod uce low quality products when it should produce high quality ones. The mode l is calibrated using market data for yoghurt.