We demonstrate that demand uncertainty alone can lead to equilibrium product variety. We consider a simple environment in which when demand is certain, a social planner, a competitive market, and a monopolist would all offer a single product, but when demand is uncertain, a social planner, a...

We show that demand uncertainty leads to vertical product differentiation even when consumers are homogeneous. When a firm anticipates that its inventory or capacity may not be fully utilized, product variety can reduce its expected costs of excess capacity. When the firm offers a continuum of...