Concentration in Military Procurement Markets

A Classification and Analysis of Contract Data

by James W. McKie

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Develops an industry classification system for military procurements and, using Department of Defense (DOD) purchase data, estimates concentration in these industries. The study derives 4-firm concentration ratios on an industry basis and also estimates the proportion of each industry's sales going to the DOD. These ratios are compared with conventional DOD concentration measures as well as nondefense concentration ratios. Results show that unilateral buyer and seller monopolies are both rare in defense markets, the typical situation is bilateral market power, and the 100 largest defense contractors vary greatly in the percentage of military sales. The concentration figures suggest that new economic models of market relationships are needed to analyze the economics of defense markets. Also, a market dimension should be added to the DOD procurement data.

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