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 South Dakota State University, Department of Economics in its series SDSU Working Papers in Progress with number 52009.
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
Price cost margins; WIC; Oligopoly; Food Assistance; Infant Formula; auctions; contracts;
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.
- Davis, David E., 2011. "Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 102457, Agricultural and Applied Economics Association.
- 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-AGR-2009-11-07 (Agricultural Economics)
- NEP-ALL-2009-11-07 (All new papers)
- NEP-COM-2009-11-07 (Industrial Competition)
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.:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Davis, David E., 2011. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," SDSU Working Papers in Progress 12011, South Dakota State University, Department of Economics.
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