Do Food Programs Limit Your Choices in Grocery Stores? Example of WIC Exclusive Contracts in the Infant Formula Market

Abstract

The Women, Infants, and Children nutritional Program (WIC) grants exclusive contracts (or competitive bidding contracts) to infant formula manufacturers, who provide rebates that lower the cost to recipients. However, these exclusive contracts may create considerable market power for formula manufacturers, thus impacting all formula buyers regardless of WIC eligibility. This paper has two goals: first, to empirically demonstrate the existence of such spillover impacts on non-participants; and second, to shed light of the reasons and mechanisms driving them. We combine the NielsenIQ Retail Scan data and the CPS-IPUMS data at the county-month level to answer those questions. Our results show that when the WIC contract changes hands, 30 percent of the change in market shares comes from households who are not eligible for WIC, suggesting a large spillover effect.  We test two plausible explanations: that the winning brand is more likely to be on offer at stores (choice set hypothesis) or that the winning brand is cheaper than others (price hypothesis). Our findings suggests that both hypotheses play small roles in explaining the spillover. Hence, on the extensive margin, food programs do not limit non-beneficiaries choice sets in grocery stores.