The standard competitive models of economics, dealing with the consumer, producer, and individual market or general competitive equilibrium, are couched in terms of homogeneous products. That is, a fixed list of distinct commodities is assumed to exist, each commodity is produced by a multitude of firms, and, in some models, the consumer is presumed to buy and use strictly positive amounts of every good. If apples were one commodity, then no consumer could distinguish the apples grown by firm j from those grown by firm k. Chamberlin's concept (1933) of differentiated products starts from the position that no two firms make precisely the same thing, even when they are nominally in the same industry, and consumers have quite various tastes from one to another over the various firms' products. Thus, apples may be larger or smaller, more or less sweet, and varying in texture. Many consumers may confine their purchases to one firm's apples, and the price difference that will place the consumer on the margin between two kinds of apples may, and usually will, be quite variable among consumers.

Chamberlin's principal use of this concept is to frame an alternative to the usual competitive model in which there are well-defined industries consisting of product categories, like apples, that can be studied in isolation as legitimately as one can investigate a single market in the homogeneous goods framework.