The horizontal and vertical differentiation models are shown to accurately characterize several real world markets. For example, advertising may have enhanced subjective vertical differentiation and caused name and generic brands to coexist in the market for aspirin, a market where quality and product safety are an important consumer concern. The market for premium cola best exemplifies the purely horizontal case where advertising helps create images that appeal to different types of consumers. Several market examples are used to demonstrate how the results may change when key assumptions of the model are violated. For example, when consumer tastes are concentrated ataparticular location, firmswilllocate “where the demand is” (Tirole, 1988, p. 286). This may help explain the divergent market shares of various brands in the cigarette market. In addition, pricing behavior is likely to differ from the predictions of the model when there are real quality differences among brands (as with bananas). Finally, firms may use actions other than advertising to signal quality and create a brand name. For example, it appears that Dole’s reputation in other fruit markets enables it to signal quality without advertising at all.