Product Differentiation

Products are differentiated when the products of different companies are not perfect substitutes -- instead, "every company has a monopoly of its own product." Nevertheless, companies may compete by changing the characteristics of the product they sell. The idea is not necessarily to make a better product than the competitor, just different -- to appeal to a different "market niche."

Again, economists (on the whole) regard this form of competition as a mixed bag:

It increases variety, thus increasing the range of consumer choice, which is good, but
It divides up the market, leading to higher prices and costs

According to the traditional ideas on "imperfect competition" developed in the first half of the twentieth century, this form of competition is especially common in "monopolistic competition." In fact it is part of the definition of monopolistic competition. But is also observed in many oligopolies.