IDEAS home Printed from https://ideas.repec.org/p/ags/aaea11/102457.html
   My bibliography  Save this paper

Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?

Author

Listed:
  • Davis, David E.

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.

Suggested Citation

  • Davis, David E., 2011. "Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers?," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 102457, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:102457
    DOI: 10.22004/ag.econ.102457
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/102457/files/WIC%20Markups_Jan_2011.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.102457?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Betson, David, 2009. "Impact of the WIC Program on the Infant Formula Market," Contractor and Cooperator Reports 292071, United States Department of Agriculture, Economic Research Service.
    2. Prell, Mark A., 2004. "An Economic Model Of Wic, The Infant Formula Rebate Program, And The Retail Price Of Infant Formula," Food Assistance and Nutrition Research Reports 33879, United States Department of Agriculture, Economic Research Service.
    3. 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.
    4. Rui Huang & Jeffrey Perloff, 2014. "WIC Contract Spillover Effects," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(1), pages 49-71, February.
    5. 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.
    6. 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.
    7. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
    8. 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;The Industrial Organization Society, vol. 27(3), pages 253-278, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rui Huang & Jeffrey Perloff, 2014. "WIC Contract Spillover Effects," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(1), pages 49-71, February.
    2. Rojas Christian A. & Wei Hongli, 2019. "Spillover Mechanisms in the WIC Infant Formula Rebate Program," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 17(2), pages 1-14, November.
    3. McLaughlin, Patrick W. & Gleason, Stacy & Wilkin, Margaret, 2018. "Price Variability Across Food Product and Vendor Type in Food Benefit Redemptions Under the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)," Economic Research Report 276225, United States Department of Agriculture, Economic Research Service.
    4. Hilary Hoynes & Diane Whitmore Schanzenbach, 2015. "US Food and Nutrition Programs," NBER Chapters, in: Economics of Means-Tested Transfer Programs in the United States, Volume 1, pages 219-301, National Bureau of Economic Research, Inc.
    5. Meilin Ma & Tina L. Saitone & Richard J. Volpe & Richard J. Sexton & Michelle Saksena, 2019. "Market Concentration, Market Shares, and Retail Food Prices: Evidence from the U.S. Women, Infants, and Children Program," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(3), pages 542-562, September.
    6. Meilin Ma & Tina L Saitone & Richard J Volpe & Richard J Sexton & Michelle Saksena & Craig GundersenEditor, 2019. "Market Concentration, Market Shares, and Retail Food Prices: Evidence from the U.S. Women, Infants, and Children Program," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 41(3), pages 542-562.
    7. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    8. Saitone, Tina L. & Sexton, Richard J. & Volpe, Richard J., III, 2012. "Markups and Promotional Patterns of California WIC-Authorized Foods," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124927, Agricultural and Applied Economics Association.
    9. Katherine Meckel, 2020. "Is the Cure Worse Than the Disease? Unintended Effects of Payment Reform in a Quantity-Based Transfer Program," American Economic Review, American Economic Association, vol. 110(6), pages 1821-1865, June.
    10. McLaughlin, Patrick W. & Saitone, Tina L. & Sexton, Richard J., 2013. "Non-Price Competition and the California WIC Program," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150783, Agricultural and Applied Economics Association.
    11. Volpe, Richard & Saitone, Tina & Sexton, Richard, 2014. "Cost Containment in the WIC Program: Vendor Peer Groups and Reimbursement Rates," Economic Research Report 183224, United States Department of Agriculture, Economic Research Service.
    12. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    13. Oliveira, Victor & Frazao, Elizabeth & Smallwood, David, 2013. "Trends in Infant Formula Rebate Contracts: Implications for the WIC Program," Economic Information Bulletin 161130, United States Department of Agriculture, Economic Research Service.
    14. Romana Khan & Ting Zhu & Sanjay Dhar, 2018. "The effect of the WIC program on consumption patterns in the cereal category," Quantitative Marketing and Economics (QME), Springer, vol. 16(1), pages 79-109, March.
    15. Li, Xuemei & Saitone, Tina L. & Sexton, Richard J., 2018. "Electronic Benefit Transfer and the Women, Infants and Children Participation Rate: Evidence from Oklahoma EBT Transition," 2018 Annual Meeting, August 5-7, Washington, D.C. 273850, Agricultural and Applied Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oliveira, Victor & Frazao, Elizabeth, 2015. "The WIC Program: Background, Trends, and Economic Issues, 2015 Edition," Economic Information Bulletin 197543, United States Department of Agriculture, Economic Research Service.
    2. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    3. Oliveira, Victor & Frazao, Elizabeth & Smallwood, David M., 2011. "The Infant Formula Market: Consequences of a Change in the WIC Contract Brand," Economic Research Report 118020, United States Department of Agriculture, Economic Research Service.
    4. David E. Davis, 2012. "Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 80-96.
    5. Hodges, Leslie & Toossi, Saied & Todd, Jessica E. & Ryan-Claytor, Cayley, 2024. "The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC): Background, Trends, and Economic Issues, 2024 Edition," Economic Information Bulletin 341637, United States Department of Agriculture, Economic Research Service.
    6. Saitone, Tina L. & Sexton, Richard J. & Volpe, Richard J., III, 2012. "Markups and Promotional Patterns of California WIC-Authorized Foods," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124927, Agricultural and Applied Economics Association.
    7. Katherine Meckel, 2020. "Is the Cure Worse Than the Disease? Unintended Effects of Payment Reform in a Quantity-Based Transfer Program," American Economic Review, American Economic Association, vol. 110(6), pages 1821-1865, June.
    8. Oliveira, Victor & Frazao, Elizabeth & Smallwood, David, 2013. "Trends in Infant Formula Rebate Contracts: Implications for the WIC Program," Economic Information Bulletin 161130, United States Department of Agriculture, Economic Research Service.
    9. 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.
    10. Rojas Christian A. & Wei Hongli, 2019. "Spillover Mechanisms in the WIC Infant Formula Rebate Program," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 17(2), pages 1-14, November.
    11. Oliveira, Victor, 2007. "Informing Food and Nutrition Assistance Policy: 10 Years of Research at ERS," Miscellaneous Publications 262274, United States Department of Agriculture, Economic Research Service.
    12. Tina L. Saitone & Richard J. Sexton & Richard J. Volpe, 2015. "A Wicked Problem? Cost Containment in the Women, Infants and Children Program," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 37(3), pages 378-402.
    13. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    14. Sunil P. Dhoubhadel & Azzeddine M. Azzam & Matthew C. Stockton, 2017. "Does the USA have market power in importing ethanol from Brazil?," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 10(2/3), pages 251-266.
    15. Alessandro Bonanno & Rigoberto A. Lopez, 2008. "Wal-Mart’s Monopsony Power in Local Labor Markets," Food Marketing Policy Center Research Reports 103, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    16. Gual, Jordi, 2003. "Market Definition in the Telecoms Industry," CEPR Discussion Papers 3988, C.E.P.R. Discussion Papers.
    17. Stenborg, Markku, 2002. "Economics of Joint Dominance," Discussion Papers 834, The Research Institute of the Finnish Economy.
    18. Austan Goolsbee & Chad Syverson, 2023. "Monopsony Power in Higher Education: A Tale of Two Tracks," Journal of Labor Economics, University of Chicago Press, vol. 41(S1), pages 257-290.
    19. Katsoulacos Yannis & Konstantakopoulou Ioanna & Metsiou Eleni & Tsionas Efthymios, 2014. "Quantitative Price Tests in Antitrust Market Definition with an Application to the Savory Snacks Markets," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 1-33, January.
    20. Brorsen B. Wade & Fain James R. & Maples Joshua G., 2018. "Alternative Policy Responses to Increased Use of Formula Pricing," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-11, January.

    More about this item

    Keywords

    Consumer/Household Economics; Health Economics and Policy; Industrial Organization;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea11:102457. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.