Whatever happened to competition in space agency procurement? The case of NASA



Journal of Applied Economics. VolXI, No. 1 (May 2008), 221-236

WHATEVER HAPPENED TO COMPETITION IN SPACE
AGENCY PROCUREMENT? THE CASE OF NASA

Vasilis Zervos*

International Space University and Nottingham University Business School

Submitted June 2004; accepted November 2006

Using the U.S. National Aeronautics and Space Administration (NASA) as a case study, this
paper examines how conflicting objectives in procurement policies by public space agencies
result in anti-competitive procurement. Globally, public sectors have actively encouraged
mergers and acquisitions of major contractors at the national level, since the end of the “Cold
War”, following largely from the perceived benefits of economies of size. The paper examines
the impact the resulting industrial concentration has on the ability of space agencies to follow
a pro-competitive procurement policy. Using time series econometric analysis, the paper
shows that NASA’s pro-competitive policy is unsuccessful due to a shift, since the mid-1990s,
in the share of appropriations in favour of its top contractors.

JEL classification codes: H57, L50, L60

Key words: procurement, space industry, space agencies, NASA

i. introduction

Until the 1990s, commercial space markets were small, with space spending
dominated by governments. The behavior of space agencies was then analyzed
within a traditional public choice framework. In terms of procurement choices, this
meant that the space agency followed a policy that weighed two key objectives.
The minimization of the cost of space programs and the minimization of rent to the
space industry or, put otherwise, “best value for money” for a given space program,
whose efficiency and procurement policies can be examined within a cost-benefit
approach (Stevens 1993, Mueller 1989). The only dilemma space agencies faced
was summed up in the traditional “rent vs cost minimization choice” (for a survey
see Laffont and Tirole 1993, Sandler and Hartley 1995).

* International Space University, 1 rue Jean-Dominique Cassini, Park d’Innovation 67400
Illkirch, France. Tel: ++33(0)3 88655436, e-mail:
[email protected]. I would like to thank
Keith Hartley, Peter Swann and two anonymous referees for their useful comments, the usual
disclaimer applies. The paper benefited from feedback on an earlier version entitled: ‘Whatever
Happened to Competition in Procurement? Monopsonists Monopolies and NASA’ which was
presented at the 55th International Astronautical Congress (Fukuoka, Japan) in 2005.



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