The mechanism of polarization competition in laser diodes with a lateral quasi‐index‐guiding (QIG) structure is analyzed generally by way of the effective index approximation using a simplified QIG laser model. The influence of the relevant waveguide parameters on the polarization‐dependent threshold current of QIG laser diodes is investigated in detail by example of &lgr;=1.3‐&mgr;m ridge‐waveguide lasers. Thereby, it is found that for intermediate values of the effective index step, the TM mode exhibits a higher gain and lower threshold current, whereas for pure gain guiding or strong index guiding, the TE mode prevails. This behavior, which compares excellently to published experimental results, is proven as a basic feature of the two‐dimensional waveguiding mechanism in QIG devices. Accordingly, the effect of stress‐induced anisotropy of the optical gain has been found to be of minor importance as the origin for TM‐polarized QIG lasers made from lattice‐matched heterostructures. It is further demonstrated that, for certain device parameters, the QIG lasers with a small effective index step exhibit somewhat higher threshold currents than the purely gain‐guided devices of identical geometry.