Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?
AbstractAlthough the WIC food assistance program purchases over one-half of all US infant formula, I find the program has little impact on the prices paid by non-WIC customers. I estimate infant-formula marginal cost and find that it is low compared to price, implying large price-cost markups. But, the WIC program is not to blame. Instead large price-cost markups are likely due to customer’s price insensitivity. WIC’s impact on non-WIC customers comes through an increase in sales owing to a WIC “spill-over” effect. The WIC approved brand attains a prominence in the market that makes it a natural choice for non-WIC customers, which makes attaining WIC approval valuable to firms. Firms bid with rebates to attain exclusive WIC approved status which results in significant reductions in the cost of infant formula to the US government.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 102457.
Date of creation: Jan 2011
Date of revision:
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Price cost margins; WIC; Oligopoly; Food Assistance; Infant Formula; auctions; contracts; Consumer/Household Economics; Health Economics and Policy; Industrial Organization; L11; L113; I18; D12;
Other versions of this item:
- David E. Davis, 2012. "Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 80-96.
- David E. Davis, 2009. "Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?," SDSU Working Papers in Progress 52009, South Dakota State University, Department of Economics, revised Jan 2011.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-07 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Economic Research Report
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