Consolidation of the U.S. Defense Industrial Base: Impact on Research Expenditures
Abstract
In 1993, there were 21 companies doing major defense aerospace work -- today there are five: Boeing, Raytheon, Litton Industries, Lockheed Martin, and Northrop Grumman. The battle for the shrinking defense budget has resulted in not only mergers, but also an increased emphasis on the formation of partnerships among defense contractors. As the defense industry has consolidated, the remaining firms have been forced to cut back on internal research and development (R&D) expenditures and other efforts to innovate due to cost pressures. Should we expect a further reduction in internal R&D efforts by contractors? How does the number of competitors vying for a particular contract affect the overall level of R&D? Does it matter whether we have consolidation via acquisition, mergers, or bankruptcy? The theory described in the model provides clear predictions for partnership behavior as the publicness of the prize they pursue changes. The analysis suggests that when relationships among partners change, the fate of the partnership will tend to change along ways conjectured by Olson and Zeckhauser (1966). That is, the partnership will expend more resources if the spending by one member provides less benefit to the other member. Although the behavior on the part of partnership members didn't follow the predictions exactly as predicted, there is still strong evidence of a reduction in partnership spending as the publicness of the prize increases. Specifically, we observed a reduction of approximately 30 percent in partnership spending as the publicness increased. Additionally, there is an overall decrease of approximately 25 percent in total research expenditures by all firms competing. The experimental results provide fairly strong support for the Olson and Zeckhauser conjecture. The implication of the study is clear -- as defense contractors rely more and more on partnerships, alliances and/or teams, fewer resources can be expected to be devoted to research.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 2002
- Accession Number
- ADA487808
Entities
People
- Bruce G. Linster
- Robert L. Waller
- Stephen Slate
Organizations
- United States Air Force Academy