Although the DoD has great influence in the United States economy, it does not experience the pricing power that many expect in the markets for defense goods… While the DoD is the only buyer for defense goods at the major systems level of acquisition, the structural restrictions of defense markets prevent it from fully exercising its monopsony power.
The DoD is unable to independently determine the quantity of goods that it purchases due to the nature of foreign threats and political forces, and additional monopsony power slips away as producers still require incentives to produce at the levels that the DoD requires. Centralization of buying organizations will have little effect on pricing power at the systems level of acquisition either due to the structural limitations associated with the markets for defense goods. The very natures of the markets for defense goods clearly prevent the DoD from fully exercising the price setting power that would typically accompany its position as a monopsonist.
That was from First Lieutenant David Day, “The Limits of Monopsony Pricing Power in the Markets for Defense Goods.” Here is another good part:
The producers of a good create an oligopoly and effectively mask the true production cost for any individual firm in this type of teaming situation. While the government could attempt to find an accurate cost prediction by employing expert analysts, Adams and Adams state that “the market power of the monopsonist can thus be practically neutralized by a strong oligopolistic group of sellers obscuring technological efficiencies”
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