WIC Contract Spillover Effects
AbstractThe three major infant formula manufacturers bid state by state to be the exclusive provider to poor families under the Women, Infants, and Children (WIC) program, and all three compete for non-WIC customers at grocery stores. Previous studies explained the low WIC prices and the higher retail prices as the result of price discrimination. We propose an alternative spillover model. Grocery stores, which supply both WIC participants and others, provide relatively large amounts of shelf space to the firm that wins the state-level WIC contract. Non-WIC customers, inferring from the large shelf space that the WIC brand is superior, are more likely to buy it. Because the contract winner benefits from a spillover effect in the lucrative non-WIC retail market, firms are willing to bid more aggressively for WIC contracts than in a price discrimination model. The spillover model is more consistent with the data than is the price discrimination model. We show that the retail price markup of the firm that wins the state WIC contract does not change when the contract is awarded, but that its shelf space increases in excess of the share of WIC customers.
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Bibliographic InfoPaper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 118.
Length: 49 pages
Date of creation: Dec 2009
Date of revision:
Other versions of this item:
- Huang, Rui & Perloff, Jeffrey M., 2007. "WIC Contract Spillover Effects," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9773, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Huang, Rui & Perloff, Jeffrey M., 2009. "WIC Contract Spillover Effects," Research Reports 153344, University of Connecticut, Food Marketing Policy Center.
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