In this contribution both the literature and the present-day policies regarding diversity in higher education systems will be discussed. The first part presents an overview of the theoretical and empirical studies on differentiation and diversity. Based on this, a conceptual framework is presented, which intends to explain the processes of differentiation and dedifferentiation in higher education systems. Two crucial variables are identified, and both have a crucial impact on the behaviour of higher education institutions: the level of uniformity in the environment of higher education institutions and the level of influence of academic norms and values in these institutions. The second part of this contribution focuses on current higher education policies. Hoping to create better and stronger contributions by higher education institutions to the ‘knowledge society’, many governments nowadays develop policies of less state control and more autonomy. It will be argued that these policies do not automatically lead to more diversity in higher education systems. The reason for this is simply that markets work imperfectly in higher education systems and that the behaviour of higher education institutions is triggered by competition for reputation, a process producing several unintended consequences. In this latter context the recent rankings and typologies in higher education are also discussed.