Firms selling a product with congestion externalities to a heterogeneous population of customers have an incentive to offer differentiated levels of quality. In a price competitive market differentiation arises endogenously through the prices chosen by firms. In equilibrium firms offer a range of prices, which induce an efficiency improving range of quality levels and allow customers to self-select their preferred price-quality combinations. Additional results suggest that, with many firms in the market, the choice of prices dominates the choice of service capacities in determining congestion levels.