Abstract
The European Community's Single Market programme has been designed to open-up public procurement in its Member States. The literature review indicated that the nature of public procurement operations in the European Union was such that the public procurement legislation in place and the harmonisation of technical standards were neither necessary nor sufficient conditions for achieving this objective. This was because the emergence of multinational networks of conglomerate firms, which are the major suppliers in many important procurement sectors, has raised unique competition issues which cannot be analyzed with traditional models of the theory of the firm. This thesis examined one of these issues, the linked oligopoly hypothesis, which states that multimarket contact among oligopolistic firms increases their ability to exercise market power without engaging in collusion that would violate antitrust laws. That is because such contact may allow the firms that supply the public procurement sector to respect each other's spheres of influence by adopting non-aggressive behaviour in those markets for fear of retaliation in other markets important to them. The analysis of inter-company contacts of a sample of 240 leading European firms was employed for the empirical estimation of the degree of firm inter-dependence created by these multimarket contacts. These measures were then introduced as explanatory variables together with additional variables in two equation models of the determinants of firm rank mobility and profitability. Based on these regression results and on expert opinions (interviews with UK officials), the linked oligopoly hypothesis has been supported and suggests that multimarket contact and conglomerate merger may be detrimental for efficiency and for competition. They are nonetheless desirable from firms' viewpoints as means of increasing collusion and therefore market power. This presents a difficult and immediate analytical problem to the anti-trust authorities: that of market extension in the public procurement field by company merger. It also raises the issue for European integration. European integration will increase multimarket contact, which, according to the linked oligopoly theory, may decrease competition.