To print a PDF version of this article, click here.
This article presents an economic model analyzing the impact of research and development (R & D) costs, production costs, and quantity requirements on the price of a Technical Development Package (TDP). It compares payoffs in a game involving a duopoly of defense firms and the government to analyze potential cost savings to the government by purchasing a TDP. It concludes that the price of a TDP depends primarily on rival firms’ R&D as well as production costs. The government is most likely to achieve cost savings in the case where a rival firm has lower production costs, but would lose a competitive bid without a TDP. However, a TDP does not automatically lead to competition-based savings. The author then discusses the implications of relaxing key assumptions of the model.