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WIC Contract Spillover Effects

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  • Rui Huang
  • Jeffrey Perloff

Abstract

Under the U.S. Special Nutrition Program for Women, Infants, and Children (WIC) program, the three major infant formula manufacturers compete for WIC supply contracts, state by state. Policy makers have been puzzled by the question of why the contracted WIC price is substantially lower than the retail (non-WIC) price. Our explanation is that winning the WIC contract is extremely valuable to a manufacturer because of a spillover effect: The increased retail shelf-space that is dedicated to the WIC brand and the WIC logo increases non-WIC sales. We identify this effect by showing the variations in market shares of winning and losing firms that follow WIC contract changes. Immediately after the contract change, there is an immediate increase in the market share of the WIC contract winner and an equal drop in the loser’s share because of new WIC purchases. Then, over an extended period, the spillover effect increases the winner’s share and decreases the loser’s share as retailers shift shelf space from the loser to the winner. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Rui Huang & Jeffrey Perloff, 2014. "WIC Contract Spillover Effects," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(1), pages 49-71, February.
    • Handle: RePEc:kap:revind:v:44:y:2014:i:1:p:49-71
    DOI: 10.1007/s11151-013-9397-5
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    1. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
    2. 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.
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    5. 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.
    6. 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.
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    Cited by:

    1. 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.
    2. Katherine Meckel, 2020. "Is the Cure Worse Than the Disease? Unintended Effects of Payment Reform in a Quantity-Based Transfer Program," American Economic Review, American Economic Association, vol. 110(6), pages 1821-1865, June.
    3. 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.
    4. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    5. 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.

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