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Strategic Procurement, Openness and Market Structure

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  • Maria del Carmen Garcia-Alonso

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  • Paul Levine

Abstract

We examine strategic procurement behaviour by governments and its effect on market structure in sectors, such as defence, where the government is the dominant consumer. In a world economy with trade between producers, and between producers and non-producers, we use a modified Dixit-Stiglitz utility function with an independent taste for variety. Governments can, in effect, choose the number of domestic firms and their size by adjusting the procurement price. Unlike the standard model with no independent taste for variety and no external sector of non-producers, there are incentives for subsidies, openness impacts on industrial structure and there are potential gains from procurement coordination between producer countries.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0503.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 0503.

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Date of creation: Feb 2005
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Handle: RePEc:ukc:ukcedp:0503

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: procurement; openness; market structure; defence and pharmaceutical sectors;

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References

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  2. Miyagiwa, Kaz, 1991. "Oligopoly and Discriminatory Government Procurement Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1320-28, December.
  3. Brülhart, Marius & Trionfetti, Federico, 2001. "Public expenditure and international specialisation," HWWA Discussion Papers 141, Hamburg Institute of International Economics (HWWA).
  4. García-Alonso, María D.C. & Levine, Paul, 2008. "Strategic procurement, openness and market structure," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1180-1190, September.
  5. Mary Carmen Garcia-Alonso, 1999. "Price competition in a model of arms trade," Defence and Peace Economics, Taylor & Francis Journals, vol. 10(3), pages 273-303.
  6. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
  7. Garcia-Alonso, Maria D.C. & Levine, Paul, 2007. "Arms Trade and Arms Races: A Strategic Analysis," Handbook of Defense Economics, Elsevier.
  8. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  9. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  10. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
  11. Achilladelis, Basil & Antonakis, Nicholas, 2001. "The dynamics of technological innovation: the case of the pharmaceutical industry," Research Policy, Elsevier, vol. 30(4), pages 535-588, April.
  12. Paul Levine & Fotis Mouzakis & Ron Smith, 2000. "Arms export controls and emerging domestic producers," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(3), pages 505-531.
  13. J Paul Dunne & Maria Garcia Alonso & Paul Levine & Ron Smith, 2003. "Concentration in the International Arms Industry¤," Working Papers 0301, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  14. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335522, December.
  15. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  16. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
  17. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  18. Baldwin, Robert E., 1984. "Trade policies in developed countries," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 12, pages 571-619 Elsevier.
  19. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
  20. Paul Dunne & Maria del Carmen Garcia-Alonso & Paul Levine & Ron Smith, 2007. "Determining The Defence Industrial Base," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(3), pages 199-221.
  21. Anton, James J & Yao, Dennis A, 1992. "Coordination in Split Award Auctions," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 681-707, May.
  22. Malcolm Chalmers & Neil V. Davies & Keith Hartley & Chris Wilkinson, 2002. "The economic costs and benefits of UK defence exports," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 305-342, September.
  23. Javier Coto-Martinez & Maria del Carmen Garcia-Alonso & Paul Levine, 2005. "Taste for Variety and Optimum Product Diversity in an Open Economy," Studies in Economics 0508, Department of Economics, University of Kent.
  24. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  25. del Carmen Garcia-Alonso, Maria, 2000. "The role of technology security in a model of trade with horizontal differentiation," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 747-772, July.
  26. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, December.
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Cited by:
  1. Maria Garcia-Alonso & Paul Levine, 2004. "Strategic Procurement, Openness and Market Structure," School of Economics Discussion Papers 0904, School of Economics, University of Surrey.
  2. Paul Dunne & Maria del Carmen Garcia-Alonso & Paul Levine & Ron Smith, 2005. "Military Procurement, Industry Structure and Regional Conflict," Studies in Economics 0502, Department of Economics, University of Kent.

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