I. INTRODUCTION In this article, we test for structural breaks in U.S. defense industry and spending data over last five decades. The defense industry data, which include various measures of market concentration, capture trends in consolidation; spending data, defined broadly to include measures of contract awards, budget authority, and expenditures and investment, capture trends in market size. We identify structural breaks in those data and compare them to structural breaks found in data relating to rest of economy to address a lingering debate among defense analysts, policy practitioners, and executives as to forces behind of defense industry in 1990s. Was result of an explicit directive of U.S. Department of Defense (DOD) or was it driven by same forces that led to in many sectors of U.S. economy in 1990s? In an era in which concerns about future of defense industry are again prominent, answer bears directly on whether and how DOD might choose to engage as a policymaking and procuring agency. If broader economic forces drive industry behavior, DOD may face limitations in promoting competition, spurring innovation, or otherwise shaping defense industry. We interpret structural breaks in data as indicative of changes in defense spending, defense industry at large, and broader economy, which, in context of two stylized narratives, provides a statistical approach to explaining defense-industry consolidation. The first stylized narrative, representing what we refer to as DOD-policy-centric view, describes DOD as primary engineer of defense industry in 1990s. The defense budget had been declining steadily since mid-1980s and DOD was seeking to reduce excess capacity and check rising costs. In response, at a 1993 dinner now referred to as Supper, DOD asserted its support for industry-wide [see Augustine (1997, 2006) for an eyewitness account]. The DOD backed its assertion by agreeing to reimburse firms for some merger-related costs and, later, through antitrust oversight [for discussions see Gholz and Sapolsky (1999-2000), Markusen and Costigan (1999), and Markusen (1997)]. Without explicitly denying relevance of economy-wide factors, this narrative claims DOD policy as dominant factor in process. For example, former chairman of Lockheed Martin Corporation, Norman R. Augustine, characterizes Last Supper as perhaps the most critical moment in defense industry's consolidation (Augustine, 1997). His comments suggest that defense industry was hesitant to consolidate, even when faced with a declining budget, without encouragement from its largest purchaser, DOD. (1) In contrast, a stylized view places economy-wide phenomenon at center of a story in which same forces that drove large number of mergers in rest of U.S. economy also drove of defense industry in 1990s. Such forces included developments in capital markets, innovation in technology, and deregulation [see Holmstrom and Kaplan (2001) and Andrade, Mitchell, and Stafford (2001) for details on merger activity in U.S. economy]. Although economy-centric view does not dismiss impact of decline in defense budget, or response of DOD to that decline, it suggests that other forces provide a more telling explanation of defense-industry consolidation. Hensel (2007), for example, offers evidence that defense industry mergers in 1990s are more correlated with economy-wide mergers than with DOD spending [see also Flamm (1998) and Oden (1998) for relevant discussions of evidence that is supportive of an economy-wide perspective]. We use methods of Bai and Perron (1998, 2003) to estimate structural breaks in data that measure defense industry consolidation, defense spending, and economy-wide trends. …