NASA’s hiring of SpaceX in September to build spacecraft opens the door for potential entrants into the space exploration industry. Boeing had previously been the only company hired by NASA to build spacecraft for specific missions (Boeing and Lockheed Martin are contracted by the military to build rockets, most of which launch satellites into orbit), and thus had a monopoly in the industry.
If NASA is willing to hire one private company for space exploration missions, why should it not be open to hiring others? Of course, there are significant barriers to entry in the industry, the biggest of which is upfront costs. Designing and building a rocket that can reach space is no easy task, and it requires a lot of time and money. This can be mitigated somewhat by government funding, but it is difficult to be funded without first demonstrating capability and success in the field. A second barrier to entry is the limited demand for space exploration. Currently only a handful of national governments are funding the industry, although, companies like SpaceX hope to man private flights into space as an extreme “recreational” activity. Of course, such flights would be unaffordable for all but the wealthiest. However, prices will begin to decline as more firms enter the market, creating competition, and technology/innovation reduce manufacturing costs.
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NASA and Google recently signed a $1.16 billion lease (announced Nov. 10) that will provide Google with a 1,000 acre piece of property. Google plans to renovate many of the hangars and other buildings in order to use them for space exploration and robotics. Source: http://online.wsj.com/articles/google-signs-60-year-1-16-billion-nasa-lease-1415667432
Over the past few years NASA has held multiple competitions for designing different satellites and robots, and NASA could use this idea on a larger scale by contracting with the private sector more often. Multiple private sector space firms have popped up in recent years, and competition for NASA contracts could lower costs and increase efficiency for space missions. It could also save funds in the long run and make up for the lack of public sector funding. Many government agencies use private sector contracts to utilize the benefits of the free market and save on costs, and there’s no reason NASA should be different. SpaceX has already shown this is feasible on a large scale.
While the move towards privatization in the space industry, especially after the close of the shuttle station in 2011, is an opportunity for the potential to lower costs and increase efficiency for space missions it also comes with risks. Recently there have been two accidents, one by Orbital Sciences and the other by Virgin Galactic that some see as setbacks to the private space industry. Does this privatization mean less regulation? Can we expect to see more of these problems in the future or does privatization have nothing to do with the safety of space travel?
Perhaps private litigation will adequately provide safety incentives. After all, if these trips are for the wealthy, I bet they’d hire some pretty good lawyers. Would be a real quick trip to Title XI.
How about the IO for this? It’s a small market with very high fixed / sunk costs, so why would we really get competition? Yes, up front firms will bid for the monopoly – and hope for lots of engineering changes that will let them recoup by renegotiation for any underbidding. But space exploration is (pardon) going nowhere, and there’s only modest commercial demand – the odd replacement of a GPS satellite, or one for TV. So my sense is this is a natural monopoly.
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