Monoplies Commission Report 2026 – Light and dark in the defence sector

The Monopolies Commission considers antitrust law oversight in the defence sector to be broadly effective, but identifies a clear need for reform in the areas of public procurement and contracting. Particular attention is drawn to barriers to market entry, increasing market concentration and shortcomings in European defence procurement. This article highlights the developments in competition and public procurement law that companies in the defence sector should keep an eye on in future.

On 9 July 2026, the Monopolies Commission presented its main report ‘Competition 2026: Towards a Competition-Oriented Economic Policy’. Among other things, the report examines the defence sector, which is booming for geopolitical and security policy reasons. The developments and problem areas in competition and public procurement law highlighted therein provide cause to examine their practical implications.

Antitrust law applies, but market contraction is evident

The Monopolies Commission considers antitrust oversight of the defence sector to be fundamentally effective. This is also reflected in the proceedings analysed by the Commission and the Federal Cartel Office. The published decisions ultimately raised only few concerns. In particular, merger proceedings were generally cleared. However, the Monopolies Commission highlights three problem areas: 

• Barriers to market entry are a particular risk in the case of conglomerate mergers and joint ventures, as large groups could leverage their financial strength across many markets. According to the Monopolies Commission, tying and bundling carry the risk of leveraging, portfolio and spillover effects. Smaller manufacturers could suffer as a result if system contracts channel demand towards a few large suppliers.
   
• According to the Monopolies Commission, flexibility in switching production plays a particularly important role in the objective market definition. As defence equipment is hardly interchangeable due to specialisation, it is not sufficient to consider demand alone. Rather, the decisive factor is whether suppliers can switch their capacities to other orders. Added to this are ‘complete systems’ as a separate market. Here, prime contractors supply the defence equipment, integrate the subsystems and assume liability for the equipment. As a result, market practice defines the markets more narrowly. Geographically, the markets are predominantly national, as demonstrated, amongst other things, by the Federal Cartel Office’s decision Rheinmetall/Kulka regarding complete systems. A consistently European procurement approach could change this.
   
• The concentration of defence markets could give rise to growing dependencies. This poses a particular risk in the case of system contracts. Contracting authorities could become dependent on a small number of large companies as suppliers of system contracts, and smaller manufacturers in numerous markets could be subject to the specifications set by these suppliers. As defence contracts generally run for a long period, this is a particularly serious concern. According to the Monopolies Commission, however, detailed specifications set by contracting authorities could prevent dependence on the specifications of large system providers by limiting, from the outset, the possibility of imposing disadvantageous conditions in favour of smaller manufacturers.

Shortcomings in defence procurement

The Monopolies Commission identifies significant shortcomings in competitive tendering under public procurement law. State minority shareholdings in defence companies and state-owned enterprises create the potential for unequal treatment in the award of defence contracts. Opportunities for competition across the EU as a whole are underutilised, and established national suppliers are frequently given preferential treatment. Added to this are high barriers to market entry, such as mandatory security certifications and long-term contractual commitments. Furthermore, the state’s purchasing power is not being fully exploited from a strategic and economic perspective due to the fragmentation of public procurement bodies. With regard to public procurement law, the Monopolies Commission highlights four areas for reform in particular:

• European coordination: Procurement projects should be pooled to a greater extent at European level. Through joint procurement, interoperability and the mutual recognition of certifications and approvals, economies of scale are to be created and cross-border competition strengthened. In this context, parallel procurement or the involvement of multiple suppliers (‘dual sourcing’) is to play a decisive role.
   
• Simplification and acceleration of standardised, digital procurement procedures: Tender documents should be significantly streamlined and the duration of procedures considerably reduced. Direct awards should also be simplified. At the same time, a balanced relationship between urgency and innovation should be achieved, enabling short-term procurement from established suppliers as well as the parallel and independent promotion of future technologies. Nevertheless, public procurement and state aid law should not be abandoned, and the principles of the rule of law should be upheld.
   
• Innovation-friendly procurement: Procurement procedures should be designed to be more open to innovation (‘bottom-up’). The targeted involvement of start-ups and small and medium-sized enterprises (SMEs), as well as incentives for them, is recommended. SME-specific tenders and the partial reimbursement of tender costs for unsuccessful bidders are also conceivable.
   
• Procurement screening: The Monopolies Commission welcomes the introduction of procurement screening under the draft bill for the 12th amendment to the Act against Restraints of Competition (GWB). Under this, public contracting authorities are to be obliged to centrally report all applicants and tenderers in procurement procedures exceeding the European thresholds. This is intended to make a data-driven contribution to strengthening the enforcement of competition law in the procurement sector.

Competition authority supervision and Article 346(1)(b) TFEU

Finally, the Monopolies Commission also addresses Article 346(1)(b) TFEU. Under this provision, certain state measures in the defence sector, including those relating to procurement, may be exempted from the rules of EU competition law (Article 101 et seq. TFEU). Furthermore, a Member State may instruct undertakings not to notify a concentration to the Commission in Brussels in order to safeguard essential security interests. In doing so, the Member State has a margin of discretion, but must set out and demonstrate that the strict conditions for the exemption are met. However, the provision does not generally prevent full competition scrutiny: whilst it is difficult to ascertain how many merger control notifications are omitted on the basis of Article 346 TFEU, many mergers in the defence sector are nevertheless notified to the European Commission. This is due in particular to the strict conditions and their narrow interpretation by the European Commission. For example, defence companies that also offer products in the civilian sector (e.g. training simulations, engines, etc.) cannot, as a rule, rely entirely on the exemption under Article 346 TFEU.

Key takeaway

The Monopolies Commission advocates for competition-oriented and innovation-friendly defence procurement, which should ideally be coordinated across Europe. This is a positive sign for companies wishing to compete. In practice, projects rarely face obstacles under competition law (in terms of clearance). At the same time, the Monopolies Commission is calling for greater interoperability and stronger involvement of start-ups and SMEs. It sees the greatest need for reform in public procurement law. Innovation and competition pay off, including when it comes to rapidly building up defence capabilities. In practice, it is important to keep an eye on the issues raised by the Monopolies Commission and to take them into account in defence procurement projects.

Back to list