The Changing Shape of the Defense Industry and Implications for Defense Acquisitions and Policy

In the mid-1990s, the US defense industry experienced a dramatic wave of consolidation. This paper seeks to establish the statistical facts of defense industry consolidation, including the ways in which it reshaped the industry in the 1990s; the ways in which it may continue to reshape the industry; and the forces that promote or discourage it. It also seeks to consider the implications of consolidation for defense acquisitions and policy. The paper places the events of the 1990s in the broad context of economic and industrial activity spanning almost five decades: 1958-2006. It draws primarily -- and in new ways -- from a contracting data set known as the DD35O and applies standard economic models and tools. The paper finds that consolidation has had its most pronounced effects at the highest levels of the industry; that the process of consolidation has abated, if not reversed itself, in recent years; and that larger domestic and international economic force have been at least as important as DoD budget decisions and policy in promoting consolidation. The DoD has a significant say in what happens in the defense industry but cannot control it. Presented at the Annual Acquisition Research Symposium (5th): Creating Synergy for Informed Change, held in Monterey, CA, on 14-15, 2008. Published in the proceedings of the symposium, p48-77, 2008. Document includes briefing charts in addition to text. The original document contains color images.