“If We Don’t Sell Them Weapons, Someone Else Will”: Market Structure and the Global Trade in Arms

Abstract: This paper tests an original formal model about how the structure of markets for weapons -- from competitive to monopolistic -- shapes dyadic patterns and prices in the arms trade. This model is motivated by the common justification for arms sales that ``if we do not sell them guns, someone else will'' and accounts for two puzzling empirical observations: that suppliers appear willing to sell arms to almost anyone and that they charge more to recipients with aligned preferences. I show how market structure and foreign-policy preferences interact to shape dyadic patterns of trade in arms. When markets are monopolistic, suppliers restrict transfers so as not to empower their enemies. But when markets are competitive, because most recipients will be able to find a willing supplier, suppliers are willing to sell to pretty much anyone. In competitive markets, then, dyadic patterns are shaped primarily by importer concerns about becoming dependent on unfriendly suppliers. Counter-intuitively, these concerns about dependency give suppliers the power to collect economic rents by charging their friends more.