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Strategic Procurement, Openness and Market Structure

  • Maria Garcia-Alonso

    (University of Kent)

  • Paul Levine

    (University of Surrey)

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 indepen- dent 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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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0904.

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Length: 39 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:sur:surrec:0904
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  1. Maria del Carmen Garcia-Alonso & Paul Levine, 2005. "Strategic Procurement, Openness and Market Structure," Studies in Economics 0503, School of Economics, University of Kent.
  2. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  3. Brülhart, Marius & Trionfetti, Federico, 2001. "Public expenditure and international specialisation," HWWA Discussion Papers 141, Hamburg Institute of International Economics (HWWA).
  4. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May.
  5. 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.
  6. 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, School of Economics, University of Kent.
  7. 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.
  8. 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.
  9. 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.
  10. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  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 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.
  13. repec:cup:cbooks:9780521335522 is not listed on IDEAS
  14. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  15. Garcia-Alonso, M.C., 1998. "The role of Technology Security in a Model of Trade with Horizontal Differentiation," UFAE and IAE Working Papers 423.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  16. Miyagiwa, Kaz, 1991. "Oligopoly and Discriminatory Government Procurement Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1320-28, December.
  17. 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.
  18. 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.
  19. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  20. 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.
  21. 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.
  22. repec:cup:cbooks:9780521335263 is not listed on IDEAS
  23. 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.
  24. Levine, Paul & Smith, Ron, 2000. "The Arms Trade Game: From Laissez-Faire to a Common Defence Policy," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 357-80, April.
  25. Garcia-Alonso, Maria D.C. & Levine, Paul, 2007. "Arms Trade and Arms Races: A Strategic Analysis," Handbook of Defense Economics, Elsevier.
  26. Brulhart, Marius & Trionfetti, Federico, 2004. "Public expenditure, international specialisation and agglomeration," European Economic Review, Elsevier, vol. 48(4), pages 851-881, August.
  27. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  28. 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, June.
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