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Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?

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Author Info

  • David E. Davis

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

Abstract

Although 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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File URL: http://hdl.handle.net/10.1093/ajae/aar086
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File URL: http://repec-sda.sdstate.edu/repec/sda/pdf/WICMarkupsCompletePaper.pdf
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File URL: http://repec-sda.sdstate.edu/repec/sda/pdf/WICMarkups_Jan_2011WP.pdf
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File URL: http://repec-sda.sdstate.edu/repec/sda/pdf/WICMarkups_Oct09.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 52009.

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Length: 43 pages
Date of creation: Oct 2009
Date of revision: Jan 2011
Publication status: Published in American Journal of Agricultural Economics, January 2012, pages 80-96
Handle: RePEc:sda:workpa:52009

Contact details of provider:
Postal: Box 504, Scobey Hall, Brookings, SD 57007-0895
Phone: 605-688-4141
Fax: 605-688-6386
Web page: http://www.sdstate.edu/econ/
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Related research

Keywords: Price cost margins; WIC; Oligopoly; Food Assistance; Infant Formula; auctions; contracts;

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References

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  1. Oliveira, Victor & Davis, David E., 2006. "Recent Trends and Economic Issues in the WIC Infant Formula Rebate Program," Economic Research Report 7228, 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. Davis, David E. & Leibtag, Ephraim S., 2005. "Interstate Variation In Wic Food Package Costs: The Role Of Food Prices, Caseload Composition, And Cost-Containment Practices," Food Assistance and Nutrition Research Reports 33811, United States Department of Agriculture, Economic Research Service.
  4. 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.
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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.

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