Product differentiation is an important research area in industrial organization economics and has provided numerous insights when conducting theoretical or empirical research on competition in the fields of business strategy and marketing. Therefore, an in-depth understanding of product differentiation not only enhances comprehension of the field itself but also greatly contributes to understanding business strategy and marketing. Accordingly, this study aims to enhance understanding of the field by critically reviewing existing research on product differentiation. First, it introduces recent research achievements and examines how they relate to earlier studies. Research findings based on the assumptions of consumer heterogeneity and demand elasticity serve as examples. Second, by organizing major research findings according to their underlying assumptions, the study examines whether research results are sensitive to specific assumptions. The critical review reveals that the assumptions of quadratic transportation costs, elastic demand, and a concave consumer distribution have the greatest influence on the degree of differentiation. These assumptions make consumers highly price-sensitive, thereby maximizing the strategic incentive to minimize price competition and maximize profits, increasing the degree of differentiation to the point of maximum differentiation. Conversely, in the absence of these assumptions, the degree of differentiation decreases as firms seek to maximize profits by increasing market share, potentially reaching minimum differentiation. Based on these findings, implications that these assumptions hold for future theoretical and empirical research are presented. Additionally, when assuming that firms can introduce multiple products to the market and that cost differentiation exists across firms, the results derived from product differentiation models are shown to be highly consistent with empirical findings in business strategy research.