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Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions

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Author Info

  • Davis, David E.

    ()
    (Department of Economics,South Dakota State University)

Abstract

US government agencies in WIC infant-formula procurement auctions receive lower bids and final prices when they are in buyer’s alliances than when they are unallied. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) uses an auction to procure infant formula. Manufacturers bid on the right to be an agency’s sole supplier by offering a rebate on formula sold through WIC. This paper investigates whether bidders are more aggressive when buyers band together to jointly offer infant formula contracts. Results suggest that WIC agencies that band together to form an alliance receive stronger bids.

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File URL: http://repec-sda.sdstate.edu/repec/sda/pdf/CountevailingPower.pdf
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Bibliographic Info

Paper provided by South Dakota State University, Department of Economics in its series SDSU Working Papers in Progress with number 12011.

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Length: pages 24 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:sda:workpa:12011

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Postal: Box 504, Scobey Hall, Brookings, SD 57007-0895
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Fax: 605-688-6386
Web page: http://www.sdstate.edu/econ/
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Keywords: auctions; food assistance; countervailing power; buyer concentration; oligopoly; WIC;

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References

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  1. Leonardo Rezende, 2008. "Econometrics of auctions by least squares," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(7), pages 925-948.
  2. 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.
  3. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
  4. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  5. 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.
  6. Oliveira, Victor & Frazao, Elizabeth & Smallwood, David M., 2011. "The Infant Formula Market: Consequences of a Change in the WIC Contract Brand," Economic Research Report 118020, United States Department of Agriculture, Economic Research Service.
  7. John Crespi & Richard Sexton, 2005. "A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle," Review of Industrial Organization, Springer, vol. 27(3), pages 253-278, November.
  8. Chipty, Tasneem, 1995. "Horizontal Integration for Bargaining Power: Evidence from the Cable Television Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 375-97, Summer.
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