More good reading from the Defense Science Board report out yesterday on the US defense industrial base. This section focuses on the dark side of the defense industry consolidation that began in 1993. Here’s the passage:
While not widely pervasive, there is evidence that continued vertical integration poses significantly increased risks to competition, due to inherent attributes of the consolidating defense market structure. The combination of the Super Primes’ broad program authority, along with their substantial subsystem capabilities, creates unintended incentives that undermine subsystem competition as well as the analysis of alternatives. Additionally, increased anecdotal evidence shows that, while subsystem and product providers are generally heathly, they vace increasing challenges. There are complaints of unfair make/buy decisions, concerns over a lack of R&D flow down — where primes strategically keep developmetnal subsystem work “in house” rather than sharing with their subcontractors. As a result, subsystem firms increasingly do not bid in some areas due to competition from Super Primes who are also their lead customers.