Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions
27 Pages Posted: 10 Dec 2011
Date Written: December 6, 2011
State WIC agencies in 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. A theoretical model of rebates shows that bidders may shade their bids and extract surplus from agencies. Estimation shows that bids are lower to alliances suggesting that alliances countervail the power of bidders to extract surplus.
Keywords: auctions, food assistance, countervailing power, buyer concentration, oligopoly, WIC
JEL Classification: L13, D43, D44, Q18, I18
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