Defense Contracting in the Final Frontier: Efficiency and Inefficiency in U.S. Military Space Markets

Space is an increasingly important strategic domain, playing a vital role in U.S. military operations. U.S. space missions rely heavily on defense contractors—corporations that provide goods and services to the U.S. armed forces. This article presents an evaluation of the efficiency of defense outsourcing in U.S. military space markets, emphasizing the relationship between market structure and contractor performance. Several strategically important U.S. space markets exhibit inefficiencies driven by high levels of market concentration. In concentrated markets—monopolies, duopolies, and oligopolies—limited competitive pressure diminishes contractor incentives to reduce costs and innovate, while also weakening the DoD’s ability to hold contractors accountable for underperformance. By contrast, defense markets characterized by greater supplier diversity tend to foster more efficient outcomes, including lower costs, greater accountability, and increased innovation. The findings suggest that insufficient competition may degrade the effectiveness of U.S. space operations and, in turn, undermine broader U.S. national security interests.