An Analysis of Offset Negotiations in Bilateral Oligopoly

The main objective of this paper is to analyze the offset negotiations under the conditions of bilateral oligopoly. The analysis is conducted in a game-theoretical model of offset offers in the static and in the dynamic framework. The model allows to discuss the incentives for the defense contractors to use different size of offset packets in the bidding process for defense contracts. The results lead to the conclusion that the attempts of some governments to coordinate multilateral reduction of offset packages have a low chance of success in the contemporary defense markets.