Analysis of Competition in the Defense Industrial Base: An F‐22 Case Study

Abstract

Consolidation of the defense industrial base has led to concerns about whether enough competition exists between remaining firms to maintain needed cost reduction and innovation. We examine competition in the U.S. defense industrial base by performing an in‐depth case study of Lockheed Martin and the F‐22 program that considers multiple tiers of the industrial base. We find that defense firm specialization has led to outsourcing practices and arguably a more robust U.S. defense industrial base. Implications for government policy are identified. (JEL H57, O38, D43, L14)

Addressing Competitive Responses to Acquisitions

“…For example, Lockheed Corporation's acquisition of General Dynamics' aircraft division in 1993 occurred early in that decade's defense industry consolidation and it involved one of the strongest aircraft product lines and production facilities. 54 Although opportunities can come from competitors divesting assets following an acquisition, 55 research suggests that early acquirers benefit from first-mover advantages that keep resources from a rival. 56 Further, early acquisitions receive less regulatory oversight, and at the same time they may preclude later acquisitions due to increased competition concerns.…”