This paper presents a model of investment in which heterogeneous firms choose between new investment and acquisitions. New investment involves purchasing a new plant for an existing variety. Acquisitions involve purchasing a plant and a variety from a selling firm. Using a variable-elasticity demand system, I show that if varieties within a differentiated industry are imperfect substitutes, mid-productivity firms invest. As varieties approach perfect substitutability, high-productivity firms invest. For both cases, within the region of investing firms, the most productive choose acquisitions over new investment. In analyzing firm-level data from Compustat, I find evidence that supports these predictions.