R&D policy support and industry concentration: A skin model analysis of the european defence industry

Abstract

The European defence industry is a highly concentrated market. The European Union has recently introduced a new Directive that is supposed to ensure free trade in defence material and make the European defence industries more efficient and competitive. This chapter makes use of a SKIN model to analyze how this on-going process of EU liberalization is likely to affect industry concentration in the defence industries of large and small European countries. The simulation analysis points out two main results: (1) There is a clear connection between market liberalization and a reduction in industry concentration. (2) The effect of the liberalization reform on industry concentration is clear for both large and small EU economies, but it is stronger for larger countries. On the whole, these results emphasize the importance of introducing market liberalization in such a highly concentrated and protected market as the defence industry. © 2014 Springer-Verlag Berlin Heidelberg.