Concentration in Military Procurement Markets: A Classification and Analysis of Contract Data
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Report Number: RM-6307-PR
Author(s): McKie, James W.
Corporate Author(s): The Rand Corporation
Date of Publication: 1970-06
Contract: F44620-67-C-0045
DoD Task:
Identifier: AD0710589
Abstract:
This study develops and industry or market classification system for military procurements. The system is applied to the product-classified data on military purchases published by the Department of DefenseThe study derives four-firm concentration ratios on a market basis and also estimates the proportion of each market's sales going to the Defense Department. These ratios are compared with other types of concentration measures used heretofore to analyze procurement statistics.Four results emerge:Unilateral Government monopsony (buyer-monopoly) is rare in defense markets. Seller-monopoly is also rare. High concentration on the seller side tends to be related to high Government coverage on the buyer side. The number of sellers competing for a given contract and the nature of the source selection procedure show some relation to concentration as measured by conventional concentration ratios. With the exception of a few atypical industries, there does not seem to be a strong relationship between market concentration and the proportion of defense contracts in a given industry held by the four largest contractors. Among the 100 largest defense contractors, measured on an overall basis, there is remarkable variation in the percentage of importance of military sales. Policy issues arising from thse findings are not addressed, but two conclusions are drawn. First, the concentration figures suggest that the usual economic "models" of market relationships are inadequate to analyze the economics of defense markets. New models should be developed. Second, the addition of a market dimension to the procurement data published by the Department of Defense would be valuable and feasible.
Author(s): McKie, James W.
Corporate Author(s): The Rand Corporation
Date of Publication: 1970-06
Contract: F44620-67-C-0045
DoD Task:
Identifier: AD0710589
Abstract:
This study develops and industry or market classification system for military procurements. The system is applied to the product-classified data on military purchases published by the Department of DefenseThe study derives four-firm concentration ratios on a market basis and also estimates the proportion of each market's sales going to the Defense Department. These ratios are compared with other types of concentration measures used heretofore to analyze procurement statistics.Four results emerge:Unilateral Government monopsony (buyer-monopoly) is rare in defense markets. Seller-monopoly is also rare. High concentration on the seller side tends to be related to high Government coverage on the buyer side. The number of sellers competing for a given contract and the nature of the source selection procedure show some relation to concentration as measured by conventional concentration ratios. With the exception of a few atypical industries, there does not seem to be a strong relationship between market concentration and the proportion of defense contracts in a given industry held by the four largest contractors. Among the 100 largest defense contractors, measured on an overall basis, there is remarkable variation in the percentage of importance of military sales. Policy issues arising from thse findings are not addressed, but two conclusions are drawn. First, the concentration figures suggest that the usual economic "models" of market relationships are inadequate to analyze the economics of defense markets. New models should be developed. Second, the addition of a market dimension to the procurement data published by the Department of Defense would be valuable and feasible.