products vary by quality,
and consumers’ utilities have a stochastic relationship between the
product qualities. A quality rank exists, as with horizontal differentiation. Specifically, consumers are more likely to prefer a higher
quality good. We consider quality as a single attribute of the product that characterizes a variety.The objective of this work is to understand how given a quality differentiated market and consumers with heterogeneous preferences over quality, the number of firms in the market affects the amount of advertising and the quality of products produced.