Abstract

In order to develop and produce main equipment of a weapon system, a monopoly defense company may use defense materials produced by another monopoly defense company as components. In this case, Defense Acquisition Program Administration(DAPA) can use either a collective contract in which the DAPA allows the main equipment manufacturer to procure components directly from the other defense company or a separate contract in which the DAPA directly contracts with the component producer to procure components and supply them to the main equipment manufacturer as a contract method for procuring components. The contract method not only affects the acquisition cost of the main equipment, but can also affect corporate behavior such as investment, export strategies and corporate performance such as profits and administrative costs of the DAPA. However, currently DAPA's contract method selection practices are not systematic and little research has been done on this issue. This paper analyzes the effect of each contract method on investment, export price, export production, export profit, etc. of the defense companies through a game theory model. From these results, policy implications were suggested for DAPA to establish the criteria to select a rational and efficient procurement method between collective contracts and separate contracts.

Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call