Introduction

This chapter explains the economics of arms industries and their distinguishing economic features. All industries have economic features and the question we address here is, what are the distinctive economic features of arms producers and industries? The chapter starts by defining arms markets, some of the key facts about such markets and their distinctive economic features. These include their dependence on government and their distinctive supply-side features.

Arms markets

Industries form the supply side of a market that includes buyers. The competitiveness of a market is determined by the numbers of buyers and sellers. Large numbers of buyers and sellers form a competitive market, and this market provides a benchmark for assessing all markets and their industries. The opposite extreme arises where there is a single buyer or a monopsony buyer and a single seller or monopoly supplier.

Some markets are competitive, with large numbers of private buyers and private sellers. Examples of private competitive markets include agriculture, construction, household services (e.g., plumbing, window cleaning), motor vehicle repair and maintenance and some financial services. Within military markets, defence departments buy products and services such as accommodation, furniture, computers, telephones, motor vehicles and transport services that are also bought by large numbers of private consumers. Typically, most markets are characterized by large numbers of relatively small buyers, so they are competitive on the buying side of the market. Examples include large numbers of buyers of motor cars, televisions, fridges, washing machines, computers and mobile phones.

Arms markets are different on the buying side. Governments are the major, or only, buyer of arms (they are a single buyer, or monopsony). Only governments buy major lethal equipment (combat aircraft, missiles, tanks, warships). Potential buyers include the national government and any foreign governments that receive arms exports. But some arms might only be bought by the national government, which then becomes a monopsony buyer (e.g., nuclear-powered submarines in France, the UK and the US). As a result, the buying side of arms markets forms one of their distinctive economic features (see Chapter 4).