Spillover Mechanisms in the WIC Infant Formula Rebate Program
-
Christian A. Rojas
and
Hongli Wei
Abstract
This paper explores the WIC infant formula rebate program, which awards a single-source contract to the firm that offers the lowest net bid price. We study spillover mechanisms derived from instances when an infant formula manufacturer displaces another as a WIC supplier. The analysis compares three types of product segments: infant formula (where WIC is the main player), non-WIC infant formula, and toddler formula. We find that, immediately after the contract displacement, there is a significant increase in market share for all three types of formula for the winning manufacturer and that this effect increases overtime. These market share effects are likely explained by greater shelf space, better product placement, and the advantages of carrying WIC labels, as well as by a combined impact of recommendations from physicians and WIC participants. More interestingly, we observe that winning manufacturers increase the price of WIC and non-WIC infant formula over time. Back-of-the-envelope calculations show that the profit that the WIC-contract manufacturer derives from these spillovers in other product segments more than dominates the losses associated to selling the WIC product below cost. We also discuss the implications that the spillover effects have on displaced (former WIC) manufacturers.
Note
Researchers own analyses calculated based in part on data from The Nielsen Company (US), LLC and marketing databases provided through the Nielsen Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the Nielsen data are those of the researchers and do not reflect the views of Nielsen. Nielsen is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein.
A Appendix
Description of explanatory variables.
| Variable | Description |
|---|---|
| Contract change | = 1 for post WIC contract change time period, 0 otherwise |
| 3 m<t<6 m | = 1 for the first 3–6 months after WIC contract change, 0 otherwise |
| 6 m<t<12 m | = 1 for the first 6–12 months after WIC contract change, 0 otherwise |
| 12 m<t<18 m | =1 for the first 12–18 months after WIC contract changes, 0 otherwise |
| 18 m<t<24 m | = 1for the first 18–24 months after WIC contract changes, 0 otherwise |
| Average HH size | Average household size |
| Median HH income | Median Annual household income ($) |
| Poverty (%) | Percentage of families have incomes below the poverty level |
| College (%) | Percentage of the population have a bachelor’s degree |
| High school (%) | Percentage of the population have a high school diploma |
| Mother labor (%) | Percentage of mothers are in the labor force |
| Hispanic (%) | Percentage of Hispanic population |
| White (%) | Percentage of white population |
| Black (%) | Percentage of Black population |
| Asian (%) | Percentage of Asian population |
| Median age | Median age |
| Children < 5 (%) | Percentage of the population under 5 years of age |
| Number of births | Ratio of the number of live births in the current year/previous year |
| WIC ratio (%) | Percentage of newborn babies subsidized by WIC |
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Articles in the same Issue
- Invited Paper
- Japanese Beef Tariffs: Beef Quality, Farm Programs, and Producer Compensation
- Research Articles
- Spillover Mechanisms in the WIC Infant Formula Rebate Program
- The Ambiguous Impact of Information Related to Fish Sustainability
- Food Retail Liberalization, Food Retail Structure and Food Prices: The Italian Case
- Asymmetric Price Transmission along the European Food Supply Chain and the CAP Health Check: a Panel Vector Error Correction Approach
- Russian Market Power in International Wheat Exports: Evidence from a Residual Demand Elasticity Analysis
- Patented Innovation and Firm Value in the U.S. Food and Drink Industry: The Economic Importance of High-Quality Product Innovation
