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

43 Pages Posted: 12 Feb 2011 Last revised: 10 Dec 2011

See all articles by David E. Davis

David E. Davis

South Dakota State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 10, 2011

Abstract

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.

Keywords: WIC, Infant Formula, Bidding, Auctions, Food Assistance

JEL Classification: I18, L13, D43, D44

Suggested Citation

Davis, David E., Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers? (January 10, 2011). Available at SSRN: https://ssrn.com/abstract=1759440 or http://dx.doi.org/10.2139/ssrn.1759440

David E. Davis (Contact Author)

South Dakota State University - Department of Economics ( email )

Brookings, SD 57007-0895
United States

HOME PAGE: http://sdstate.edu/econ/faculty/david-davis/index.cfm

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