Title

Concentration in Military Procurement Markets: A Classification and Analysis of Contract Data

Description

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.

Subject

Commerce -- Military Procurement

Military Procurement -- Contracts

Classification

Statistical Analysis

Creator

McKie, James W.

Publisher

Santa Monica, CA : The Rand Corporation

Date

1970

Format

vii, 26 pages ; 28 cm.

Type

report

Identifier

AD0710589

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.

Date Issued

1970-06

Corporate Author

The Rand Corporation

Report Number

RM-6307-PR

Contract

F44620-67-C-0045

NTRL Accession Number

AD710589

Distribution Conflict

No

Access Rights

THIS DOCUMENT HAS BEEN APPROVED FOR PUBLIC RELEASE AND SALE; ITS DISTRIBUTION IS UNLIMITED.

Index Abstract

Contrails and DTIC

Photo Quality

Not Needed

Distribution Classification

1

DTIC Record Exists

Yes

Report Availability

Full text available by request