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Strategic procurement, openness and market structure

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  • García-Alonso, María D.C.
  • Levine, Paul

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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  • 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.
    • Handle: RePEc:eee:indorg:v:26:y:2008:i:5:p:1180-1190
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    Cited by:

    1. 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.
    2. Paul Dunne & Maria del Carmen Garcia-Alonso & Paul Levine & Ron Smith, 2005. "Military Procurement, Industry Structure and Regional Conflict," Studies in Economics 0502, School of Economics, University of Kent.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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