Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers?
43 Pages Posted: 12 Feb 2011 Last revised: 10 Dec 2011
Date Written: January 10, 2011
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: Suggested Citation