Abstract
The defense industry in the United Kingdom has experienced significant structural change since the end of the cold war. Consolidation has occurred and overseas suppliers have entered while some domestic prime contractors have exited. The implications of consolidation for innovation have been studied in the U.S. environment but much less so in the case of Britain. In this article we report briefly on the changes to structure and review the theory and empirical evidence that suggests how such change might be related to innovation. Firms' own-financed R&D in the British defense industry is proposed as a useful indicator of innovation activity and is observed to have fallen sharply. Possible explanations are sought in the recently-revived inverted-U hypothesis linking competition to innovation, and in government demand fluctuations and British defense procurement reforms. The authors caution against government taking policy action to influence industry structure until more and better data are available to analyze the potential consequences. Investigating in-contract incentives to encourage industry innovation are recommended as a possible alternative.
Highlights
The notion of “defense industry” is ambiguous for reasons that are well known
We focus on firms which were awarded prime contracts by the U.K.’s Ministry of Defence (MoD)
As regards platform systems level capability, three subsectors in the British defense industry are dominated by a single firm: BAE Systems for fast jet combat aircraft and for armored fighting vehicles, and Marshall for strategic airlift capacity
Summary
In the United Kingdom, as elsewhere, the defense industry has undergone substantial structural change since the end of the Cold War. If the theory we have outlined has explanatory power, (controlling for technological opportunity and price elasticity) the inverted U-shape implies the Schumpeter effect dominates at low levels of competition but ceases to be dominant when the number of firms increases above a critical level. In their empirical work, Tingvall and Poldahl find the AB segment encompasses variations between monopoly and duopoly and possibly a three-firm oligopoly, with the peak of the inverted U occurring at a point between two and three firms in the industry. The value of defense R&D performed by industry fell dramatically, by 39.5 percent, between 1989
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
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 callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
