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The Infant Formula Market: Consequences of a Change in the WIC Contract Brand

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  • Oliveira, Victor
  • Frazao, Elizabeth
  • Smallwood, David M.
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    Abstract

    The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is the major purchaser of infant formula in the United States. To reduce cost to the WIC program, each State awards a sole-source contract to a formula manufacturer to provide its product to WIC participants in the State. As part of the contract, the WIC State agency receives rebates from the manufacturers. In this study, we use 2004-09 Nielsen scanner-based retail sales data from over 7,000 stores in 30 States to examine the effect of winning a WIC sole-source contract on infant formula manufacturers’ market share in supermarkets. We find that the manufacturer holding the WIC contract brand accounted for the vast majority—84 percent—of all formula sold by the top three manufacturers. The impact of a switch in the manufacturer that holds the WIC contract was considerable. The market share of the manufacturer of the new WIC contract brand increased by an average 74 percentage points after winning the contract. Most of this increase was a direct effect of WIC recipients switching to the new WIC contract brand. However, manufacturers also realized a spillover effect from winning the WIC contract whereby sales of formula purchased outside of the program also increased.

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    File URL: http://purl.umn.edu/118020
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    Bibliographic Info

    Paper provided by United States Department of Agriculture, Economic Research Service in its series Economic Research Report with number 118020.

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    Date of creation: Aug 2011
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    Handle: RePEc:ags:uersrr:118020

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    Related research

    Keywords: WIC; Special Supplemental Nutrition Program for Women; Infants; and Children; infant formula; rebate; sole-source contracts; contract brand; spillover effect; ERS; USDA; Industrial Organization; Institutional and Behavioral Economics; Marketing;

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    1. Oliveira, Victor & Frazao, Elizabeth & Smallwood, David M., 2010. "Rising Infant Formula Costs to the WIC Program: Recent Trends in Rebates and Wholesale Prices," Economic Research Report 59384, United States Department of Agriculture, Economic Research Service.
    2. Oliveira, Victor & Prell, Mark A. & Smallwood, David M. & Frazao, Elizabeth, 2004. "Wic And The Retail Price Of Infant Formula," Food Assistance and Nutrition Research Reports 33873, United States Department of Agriculture, Economic Research Service.
    3. Oliveira, Victor & Davis, David E., 2006. "Recent Trends and Economic Issues in the WIC Infant Formula Rebate Program," MPRA Paper 6657, University Library of Munich, Germany.
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    Cited by:
    1. Davis, David E., 2011. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123863, Agricultural and Applied Economics Association.
    2. Rui Huang & Jeffrey Perloff, 2014. "WIC Contract Spillover Effects," Review of Industrial Organization, Springer, vol. 44(1), pages 49-71, February.

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