Evaluating Consolidation and the Threat of Monopolies within Industrial Sectors
Abstract
Economics scholars and policy makers in recent years have rung alarm bells about the increasing threat of consolidation and concentration within particular industrial sectors. This increased concentration within industrial sectors carries the risk of decreased competition and, in extreme cases, the threat of monopolies. This is particularly concerning in industries that are already highly concentrated to begin with, or where the limited nature of the customer base means that the market can only support a small number of potential competitors. This proposed research effort seeks to contribute to the ongoing scholarly discussion by looking to the example of the U.S. defense industrial base. The U.S. defense industrial base is a particularly useful subject for this analysis for three reasons. First, because of the breadth and depth of publicly available data on contracts between the Department of Defense (DoD) and its supporting industrial base, compared to the paucity of comparable data for private industry. Second, because of the diverse goods and services that DoD contracts for, the number of vendors that deliver those goods and services, and the total dollars involved. And lastly, because of the unique mix of commercial and defense-unique goods and services that DoD contracts for. This study would undertake a detailed analysis of trends in concentration, and the risk of potential monopolies, within the defense industrial base. Additionally, the study team would examine if increases in industrial sector concentration are associated with markers of poor contract performance. The proposed research effort would proceed in three stages. In the first stage, CSIS will conduct an extensive review of the relevant literature to develop hypotheses on the consequences of consolidation. To aid in the industrial base analysis and hypothesis testing, CSIS will develop a taxonomy of industrial sectors developed built upon the widely-used North American Industry Classification System (NAICS) schema using public-domain, non-sensitive contracting data from the Federal Procurement Data System (FPDS). In the second stage, the study team will identify the largest vendors in each major sector of the defense industrial base, using commonly-accepted measures of industrial sector consolidation to measure which sectors of the defense industrial base are highly concentrated, or are becoming more concentrated. In the final stage of the project, the study team will test hypotheses on the effects of industrial sector consolidation and utilize established tests of monopoly risk to evaluate the threat of monopoly in particular sectors of the defense industrial base. The outcome of this research effort is intended to be a significant contribution to the broader economics literature on industrial sector consolidation and monopolies, as well as providing private vendors with valuable data on potential targets for sector entry/expansion, and for risk mitigation and strategic planning. This proposed research effort will neither involve nor require any substantial involvement by the Government.
Document Details
- Document Type
- DoD Grant Award
- Publication Date
- Mar 15, 2017
- Source ID
- N002441710014
Entities
People
- Andrew Hunter
Organizations
- Center for Strategic and International Studies
- United States Department of Defense