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Source: https://writers.stackexchange.com/a/3271
License name: CC BY-SA 3.0
License URL: https://creativecommons.org/licenses/by-sa/3.0/

In addition to +1ing a couple other answers, I'd add:

It seems to me that the breakdown of fiction into genres (including "literary") is an imperfect system that mostly serves commercial needs. Someone might read _Twilight_ and go into a bookstore looking for something similar. The booksellers want to make that process as easy as possible, and to do that they need to make bets on what "similar" means.

So they might stick it with other books intended for a similar age group ("young adult fiction"), or books that have similar worlds, imagery, or themes ("fantasy/horror"), or even books that have a similar emotional tone ("romance").

When an author says they work within a specific genre, I interpret that as: "My work has deliberate commonalities with other books in this genre. Provided my writing is good enough, consumers who've read and enjoyed other works in this genre are also likely to enjoy my work. And by being explicit about the genre, it will be easier for booksellers to categorize and for consumers to locate."

All of that said, here's my joke about "genre" vs. "literary" fiction, based on an actual event:

**Me:** Where do you keep your horror?

**Shopkeeper:** It's with "fantasy/sci-fi".

**Me:** That's where I was looking, but I can't find the book. It's called _House of Leaves_.

**Shopkeeper:** Oh, _good_ horror is under "literature".

**Me:** [blank stare]

It's an imperfect system, like any broad approach to categorization of complex works, but it seems to be the best we've got. As others have observed, many books considered "literary fiction" could also fall into other genre categories, and it's generally the **style** that overrides those other categories.

That, again, is the bookseller's bet: That the quality of _House of Leaves_\* which engaged me was the style, and not the haunted house theme or the mood of suspense/mystery/horror.

\*_Just an example. If you hated House of Leaves, feel free to substitute your favorite genre-spanning book._

Original score: 8