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

David Davis ()

No 52009, SDSU Working Papers in Progress from South Dakota State University, Department of Economics

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: Price cost margins; WIC; Oligopoly; Food Assistance; Infant Formula; auctions; contracts (search for similar items in EconPapers)
JEL-codes: L11 L13 I18 D12 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2009-10, Revised 2011-12
New Economics Papers: this item is included in nep-agr and nep-com
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Published in American Journal of Agricultural Economics, January 2012, pages 80-96

Downloads: (external link)
http://hdl.handle.net/10.1093/ajae/aar086 Published version (text/html)
http://repec-sda.sdstate.edu/repec/sda/pdf/WICMarkupsCompletePaper.pdf This is a pre-copy-editing, author-produced PDF of an article accepted for publication in the American Journal of Agricultural Economics following peer review. The definitive publisher-authenticated version is available online using the link above. (application/pdf)
http://repec-sda.sdstate.edu/repec/sda/pdf/WICMarkups_Jan_2011WP.pdf Revised version (application/pdf)
http://repec-sda.sdstate.edu/repec/sda/pdf/WICMarkups_Oct09.pdf Original version (application/pdf)

Related works:
Journal Article: Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers? (2012) Downloads
Working Paper: Bidding for WIC infant formula contracts: Do non-WIC customers subsidize WIC customers? (2011) Downloads
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