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Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions

  • Davis, David E.


    (Department of Economics,South Dakota State University)

US government agencies in WIC infant-formula procurement auctions receive lower bids and final prices when they are in buyer’s alliances than when they are unallied. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) uses an auction to procure infant formula. Manufacturers bid on the right to be an agency’s sole supplier by offering a rebate on formula sold through WIC. This paper investigates whether bidders are more aggressive when buyers band together to jointly offer infant formula contracts. Results suggest that WIC agencies that band together to form an alliance receive stronger bids.

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Paper provided by South Dakota State University, Department of Economics in its series SDSU Working Papers in Progress with number 12011.

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Length: pages 24 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:sda:workpa:12011
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  1. Jonah B. Gelbach & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 99, University of California, Davis, Department of Economics.
  2. Rui Huang & Jeffrey Perloff, 2014. "WIC Contract Spillover Effects," Review of Industrial Organization, Springer, vol. 44(1), pages 49-71, February.
  3. Suchan Chae & Paul Heidhues, 2003. "Buyers’ Alliances for Bargaining Power," CIG Working Papers SP II 2003-24, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. 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.
  5. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, vol. 58(2), pages 205-209, February.
  6. Leonardo Rezende, 2008. "Econometrics of auctions by least squares," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(7), pages 925-948.
  7. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  8. 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.
  9. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  10. 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.
  11. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-83, March.
  12. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
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  14. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
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  17. Roman Inderst & Christian Wey, 2003. "Buyer Power and Supplier Incentives," CIG Working Papers SP II 2003-05, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  18. Chipty, Tasneem, 1995. "Horizontal Integration for Bargaining Power: Evidence from the Cable Television Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 375-97, Summer.
  19. 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.
  20. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter.
  21. 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.
  22. 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.
  23. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  24. 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.
  25. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
  26. Dana, James D., 2012. "Buyer groups as strategic commitments," Games and Economic Behavior, Elsevier, vol. 74(2), pages 470-485.
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