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Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers?

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  • David E. Davis

Abstract

Although the Women, Infants, and Children (WIC) food-assistance program purchases over half of all U.S. infant formula, I find it does not affect wholesale prices. I estimate infant-formula marginal cost and find it low compared with the wholesale price, implying large price-cost markups. But I find the program does not affect markups. Instead, the program gives preference to one firm's brand, and that brand attains a prominence in stores that results in larger sales to nonparticipants. The preference is valuable to firms and they bid with rebates to attain exclusive approved status, which results in significant cost savings to the program. Copyright 2012, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:ajagec:v:94:y:2012:i:1:p:80-96
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    File URL: http://hdl.handle.net/10.1093/ajae/aar086
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    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;The Industrial Organization Society, vol. 27(3), pages 253-278, November.
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    Citations

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    Cited by:

    1. 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.
    2. Saitone, Tina L. & Sexton, Richard J. & Volpe, Richard J., III, 2012. "Markups and Promotional Patterns of California WIC-Authorized Foods," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124927, Agricultural and Applied Economics Association.
    3. Ma, Meilin & Saitone, Tina L. & Volpe, Richard J. & Sexton, Richard J. & Saksena, Michelle, 2018. "Market Concentration, Market Shares, and Retail Food Prices: Evidence from the U.S. Women, Infants, and Children Program," 2018 Annual Meeting, August 5-7, Washington, D.C. 274205, Agricultural and Applied Economics Association.
    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. repec:kap:qmktec:v:16:y:2018:i:1:d:10.1007_s11129-017-9191-z is not listed on IDEAS
    6. McLaughlin, Patrick W. & Gleason, Stacy & Wilkin, Margaret, "undated". "Price Variability Across Food Product and Vendor Type in Food Benefit Redemptions Under the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)," Economic Research Report 276225, United States Department of Agriculture, Economic Research Service.
    7. Hilary Hoynes & Diane Whitmore Schanzenbach, 2015. "US Food and Nutrition Programs," NBER Chapters,in: Economics of Means-Tested Transfer Programs in the United States, Volume 1, pages 219-301 National Bureau of Economic Research, Inc.
    8. McLaughlin, Patrick W. & Saitone, Tina L. & Sexton, Richard J., 2013. "Non-Price Competition and the California WIC Program," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150783, Agricultural and Applied Economics Association.
    9. Volpe, Richard & Saitone, Tina & Sexton, Richard, 2014. "Cost Containment in the WIC Program: Vendor Peer Groups and Reimbursement Rates," Economic Research Report 183224, United States Department of Agriculture, Economic Research Service.
    10. Oliveira, Victor & Frazao, Elizabeth & Smallwood, David, 2013. "Trends in Infant Formula Rebate Contracts: Implications for the WIC Program," Economic Information Bulletin 161130, United States Department of Agriculture, Economic Research Service.
    11. Li, Xuemei & Saitone, Tina L. & Sexton, Richard J., 2018. "Electronic Benefit Transfer and the Women, Infants and Children Participation Rate: Evidence from Oklahoma EBT Transition," 2018 Annual Meeting, August 5-7, Washington, D.C. 273850, Agricultural and Applied Economics Association.

    More about this item

    JEL classification:

    • 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

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