The Bargaining Power of Buyers in the Aerospace & Defense Industry

Kelly Mann ECN 2020-84250 Competitive Forces Paper December 6, 2010 The Bargaining Power of Buyers in the Aerospace & Defense Industry The United States aerospace and defense industry is the largest of its type in the world. In 2009, United Press International, Inc. reports the aerospace and defense industry achieved a record $700 billion in spending. The defense market has experienced significant economic growth over the last decade due to large U.S. security spending in hopes to impact or end the global war on terrorism. The 9/11 attacks on the U.S. increased demand in the defense market while causing a decline in the airline industry. Airlines have suffered due to new security guidelines and a downturn in the U.S. economy. The future of the defense market lies in the U.S. government budget. United Press International, Inc. reports President Obama plans to cut $100 billion in spending from 2012 – 2016 from the defense budget. Firms use economist Michael Porter’s Five Competitive Forces Model to gage the profitability and competitive position in a given market. The five forces are: 1. Rivalry amongst existing competitors 2. Threatofnewcompetitors 3. Threatofsubstituteproducts 4. Bargainingpowerofbuyers 5. Bargainingpowerofsuppliers The bargaining power of buyers force is unique in the aerospace and defense industry. Firms supplying defense products outfit one main buyer, the U.S. government’s Department of Defense. The power of buyers is defined as the impact that customers have on a producing industry. The Department of Defense and Defense 1|PageIndustry relationship is near to what economist term as a monopsony. The definition of a monopsony is a market in which there are many suppliers and one buyer. In a monopsony, the buyer sets the price. One element of buyer power is the number of buyers. The Department of Defense (DOD) has been identified as the key

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