Product differentiation is a reality in today's consumer markets and warrants further study in antitrust analysis because product differentiation increases market power. Currently the FTC and Department of Justice rely on the Herfindahl-Hirschman index (HHI) to detect market power. However, the HHI is not sensitive to product market differentiation. The author uses marketing tools of market structure analysis to propose a new measure of concentration, the market concentration index (MCI), that reflects product market differentiation. The rationale for the new measure is based on marketing theory, antitrust court opinion, and the antitrust economics literature. MCI is compared with HHI and is shown to have several practical and theoretical advantages. The 1986 proposed mergers in the carbonated soda market are analyzed by means of both measures. The empirical work demonstrates MCI's ability for detecting changes in product market differentiation.
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