Effective Competition and Market Concentration in the Defense Industrial Base and the U.S. Federal Government

Abstract

The concept of a fair, open, and competitive marketplace is a cornerstone of the U.S. economy, and hence a core concern for government contracting. However, the defense industrial base has been shrinking for years with fewer companies acting as prime contractors, leading to concerns about undue increases in market concentration and a consequent decline in competition. Despite the rhetoric, what remains uncertain is whether the rates of effective competition and market concentration in the defense industrial base are unique or whether they are reflective of the broader U.S. federal government.

The following research conceptualizes the U.S. Department of Defense as a unique consumer of goods and services and combines the rest of the U.S. federal government agencies as a comparison group. Relying on a unique database containing twenty years of contract award data for all government agencies, effective competition (multiple commercial responses to competitive solicitations) and market concentration (relative market shares of companies within a marketplace) were calculated for 1) every market (i.e., product or service category), 2) all markets excluding research and development (R&D) services, 3) and a set of markets identified as not being overly dominated by any single government agency. Results provide tentative evidence that concerns for ineffective competition and market concentration in the defense industrial base may be largely overstated when compared to other government agencies. The primary importance of this research is that it contextualizes defense acquisition within the larger U.S. federal marketplace, thereby providing a clearer picture of the prevalence of certain trends.