Government contracts can lock in market dominance
A curious paradox sits at the heart of public investment in frontier technology: the same government contracts meant to spark competition often end up extinguishing it. This ceases to be a paradox when one considers the scale involved. A single launch contract can be worth hundreds of millions of dollars, and the learning that comes from winning it compounds with every subsequent award. The more a government buys from one supplier, the more that supplier learns, the better it performs, and the harder it becomes for anyone else to catch up. What looks like a sensible purchasing decision in isolation becomes a structural advantage when repeated dozens of times across an entire sector.
Economists Luisa Corrado from the University of Rome Tor Vergata and Paul Kattuman from Cambridge Judge Business School at the University of Cambridge argue in a Nature analysis that public money does more than support frontier technologies - it actively shapes the markets that grow around them Through decisions on contracts, grants, benchmarks, infrastructure and purchasing routes, governments influence which firms learn first, which systems become adopted and whether markets remain open or closed. The authors call on governments to recognize this role and adopt safeguards that account for how procurement decisions will shape future competition.
The central principle they propose is contestability. Public support should reward performance today without denying later suppliers the access they need to offer better solutions and compete on their merits. This is not about punishing successful companies. It is about ensuring that today’s winners do not become permanent gatekeepers simply because they got there first.
The Launch Records That Lock In Tomorrow
The space sector offers the clearest illustration of how market constraints emerge through government purchasing. Governments are major customers for space services, and their procurement decisions determine which firms learn, build capability and attract future investment. The mission launch itself generates evidence about what works, and that evidence gives the supplier an edge that makes its system easier to choose again next time. Each successful mission becomes a data point, a proof of reliability that competitors cannot easily replicate.
The numbers from the US Federal Aviation Administration tell the story starkly. In fiscal year 2024, SpaceX conducted 118 launches - 83 percent of the total licensed by the FAA. That dominance translated directly into future contracts. In April 2025, the same company was assigned seven of the nine national-security launch missions from that year’s budget, at a total price of 846 million US dollars. The remaining two missions went to another established provider at 428 million dollars. The pattern is self-reinforcing: past performance justifies future awards, and future awards generate more past performance.
This dynamic extends well beyond launch provision. In cloud computing and artificial intelligence, a supplier’s advantage might stem from the habits formed when agencies learn one particular way to buy, secure and use systems. Once an agency’s staff have trained on one platform, built their workflows around it and stored their data within it, switching becomes a costly and disruptive prospect. In quantum technologies, the advantage might come from the authority attached to publicly funded testing facilities, which can make some approaches seem more credible than others simply because they received government validation first.
The concern is whether today’s choices make tomorrow’s alternatives prohibitively costly or impractical. For public buyers, switching tools might require moving vast quantities of data or rebuilding entire interfaces. For firms seeking to enter a market, access might depend on technical data or infrastructure held by established players. The question is not whether the incumbent is good - it often is - but whether the market remains open enough for a better option to emerge and compete.
The Hidden Costs of Staying Put
The costs of switching are not hypothetical. NASA has estimated that bringing in a new supplier for key parts of its Space Launch System could cost more than 4.5 billion US dollars and delay the launch by ten years The reason is simple: existing contractors hold crucial technical data that a new entrant would need to build compatible components. Without access to that data, a competitor cannot even begin to bid meaningfully. The technical knowledge becomes a barrier that no amount of engineering talent can overcome.
The same pattern appears in cloud services, where the switching costs are less visible but no less real. The UK Competition and Markets Authority found in 2025 that fewer than 1 percent of customers switch providers each year The main reason is not satisfaction with the incumbent - it is that the expected benefits of a new service do not outweigh the costs of switching. Data migration, reconfiguration, retraining and the risk of disruption all factor into the calculation. When those costs are high enough, customers stay even when they might prefer to leave.
This is where the role of government becomes particularly significant. Public agencies are not just buyers - they are often the first and largest customers for frontier technologies. Their purchasing decisions set the standards that private customers later adopt. When a government agency standardizes on one system, it sends a signal to the entire market that this is the safe choice. Other buyers follow, and the supplier’s advantage compounds further. The government’s choice becomes the market’s default, whether or not that was the intention.
The authors argue that repeated awards to the same supplier can become a problem even when the supplier is genuinely excellent. Outstanding performance today does not guarantee that the same supplier will remain the best option forever. But if the market has become structured around that supplier’s systems, data and interfaces, then later competition becomes nearly impossible. The market does not stay open because the costs of entry have become too high.
The Broad View on Contestable Markets
The broader implication is that governments must think about their purchasing power as a tool for market design, not just as a way to acquire goods and services. Every contract award, every grant decision and every benchmark choice sends signals that shape which firms can compete and on what terms. When governments make these decisions without considering their market-shaping effects, they risk creating gateways controlled by a few private firms - gateways that later governments will find very difficult to open.
The principle of contestability offers a way forward. It does not require governments to penalize successful suppliers or to spread contracts artificially thin. It requires them to ensure that later suppliers retain the access they need to compete on their merits. That might mean mandating data portability, requiring technical data to be shared, or designing procurement processes that keep options open for future entrants. The goal is not to prevent anyone from winning - it is to ensure that winning today does not mean winning forever by default.
The urgency comes from the timing. In artificial intelligence and quantum technologies, governments are making choices right now about which capabilities to fund and procure, how to assess and deploy them, and how to govern their use. These choices will influence future use and investment for decades to come. The window for shaping these markets is open today, but it will not stay open indefinitely. Once systems become entrenched, once data accumulates, once habits form and interfaces become standard, the cost of change grows exponentially.
Corrado and Kattuman’s analysis suggests that the space sector’s current concentration is not an accident - it is the predictable outcome of procurement decisions made without sufficient attention to their market-shaping effects. The same forces are now at work in AI and quantum technologies. The question is whether governments will learn from the space example and build contestability into their frontier-technology purchasing from the start, or whether they will repeat the pattern and discover, a decade from now, that they have created new gatekeepers they cannot dislodge.
Sources
1. University of Rome Tor Vergata
2. Cambridge Judge Business School
4. Nature
5. US Federal Aviation Administration
6. SpaceX
7. NASA