Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?
Although 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.
|Date of creation:||Oct 2009|
|Date of revision:||Jan 2011|
|Publication status:||Published in American Journal of Agricultural Economics, January 2012, pages 80-96|
|Contact details of provider:|| Postal: |
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- 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.
- 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.
- 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.
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