Defense Industry Consolidation:

Competitive Effects of Mergers and Acquisitions

T-NSIAD-98-112: Published: Mar 4, 1998. Publicly Released: Mar 4, 1998.

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Louis J. Rodrigues
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GAO discussed the issues surrounding consolidation in the defense industry, focusing on: (1) approaches to preserving competition in a more concentrated industry; and (2) the status of Department of Defense (DOD) initiatives to improve its monitoring of competition.

GAO noted that: (1) the sharp decline in spending by DOD since 1985 has resulted in a dramatic consolidation in the defense industry; (2) the defense industry is more concentrated today than at any time in more than half a century; (3) as the single customer for many products of the defense industry, DOD must have the ability to identify and address potential harmful effects of mergers and acquisitions; (4) questions have been raised about whether the consolidation has gone too far--adversely affecting competition in the industry; (5) many defense industry transactions are recent, and there is little evidence that the increased consolidation has adversely affected current DOD programs; (6) antitrust reviews have identified some problems, and remedies have been implemented; (7) however, the consolidation could pose future problems unless DOD takes actions to improve its ability to identify problem areas and devise alternative ways to maintain competition in defense acquisition programs; (8) there are several approaches DOD can take to maintain competition; (9) for example, it can design acquisition strategies to compete missions rather than products and direct research and development funding to develop alternative supplier or technologies; (10) however, DOD cannot know what action to take unless it has adequate visibility in to the industrial base--especially at the lower tiers; and (11) progress has been slow in gaining that visability.

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