The paper investigates a two-stage competition in a vertical di?erenti-
ated industry, where each .rm produces an arbitrary number of similar qualities and
sells them to heterogeneous consumers. We show that, when unit costs of quality are
increasing and quadratic, each .rm has an incentive to provide an interval of qualities.
The .nding is in sharp contrast to the single-quality outcome when the market cover-
age is exogenously determined. We also show that allowing for an interval of qualities
intensi.es competition, lowers the pro.ts of each .rm and raises the consumer surplus
and the social welfare in comparison to the single-quality duopoly.
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