I have a hard time calling it a genre because I don't think it really is.
I know I'm picking at just one line here, and perhaps it doesn't really matter, but I think it's an important distinction.
There is more in common between "genre" fiction and "literary" fiction than there is difference. Much more in common. Be careful of drawing too stiff a distinction because, ultimately, they're both
stories. And what makes stories work, narratologically, is entirely shared between lit-fic and genre, and between romance and MilSF, and between kid-lit and memoir. Compelling dramatic situations, good character motivation and stakes, interesting plot that engages by playing with tension and expectation, writing that leads the reader into the story. Absent any one of these and the
story will be weaker, no matter what genre it is.
Ergo, lit-fic is a genre. That's why I put scare-quotes around "genre" and "literary" fiction above, because in so far as they're genres at all, there is no divide between them. The distinction is useful, in certain comparative cases, and there are certain audience-related distinctions between what might be called commercial fiction and what might be called literary--e.g., literary tends to win more prizes, commercial fiction tends to sell more copies. But that's a generalization and even it breaks down when you consider many authors write both, could be categorized as both, both can sell very well, and most readers read from both pots.
Genres themselves are basically groups of commonalities. They're useful narratologically in that they create expectations in their readers, which can then be subverted. Any story that hews too close to genre standards runs the risk of being boring. A genre is defined in large part by tropes and in smaller part by structure.
Tropes are not bad. Even lit-fic has them.
There's a tendency in some quarters to draw this hard line between "genre" fiction and "literary" fiction, as if the two are different. Other than as an interesting topic for discussion, I've never seen anything good come of drawing this distinction. It's not even a particularly interesting narrative analysis. If applied too rigorously to the writing or creating of a story, it tends, in my experience, to result in stories that try very hard to be something they're not. This goes as much for superhero stories as it does for contemporary or introspective literary stuff. A story works when it pushes and plays with those expectations. All stories push reality. All stories mix genres.
Instead, try distinguishing "book" and "story". Story being the words, the world being created and told by the fire. Books being the actual experience, the turning of the page, the fancy cover. Story being the magic that we create while banging our heads against a desk, whereas books are professionally crafted products. Genre is a very useful tool for getting from story to book. Literary is a descriptor that may indicate some elements of the writing, style, or theme of the book. Thinking of story and book as different helps, I find, with separating oneself from projects--kind of essential--and also helps keep things straight if and when stories morph across media since "story" can be applied and translated into different media but a "book" is always a bound object with pages and certain other conventions that takes up space on your shelf or your Kindle. Books have genres. Stories do not. Books are literary. Stories are written.
Sincerely,
A Literary Fantasy Writer