WIC and the Infant Formula Market
Three firms, Mead-Johnson, Abbott Laboratories, and Nestle, compete for the majority of market share in the US infant formula market. Due to the high cost of infant formula, the federal government established the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) in order to provide low-income households with access to proper nutrition and care. WIC hosts auctions in each state for infant formula firms and awards a grant to the firm that offers WIC the highest rebate per unit of infant formula. In exchange, the firm that wins the WIC auction offers vouchers for free infant formula to WIC households. USDA research on market share using Nielsen HoemScan data reveals that upon winning the WIC contract in a state, that the market share of the new WIC formula provider rises to the order of 90-95% of that state's infant formula sales. This measure is significant, as WIC households make up around 40% of the formula market. Our paper examines the purchasing behavior of non-WIC households in the presence of the WIC label across regions and household characteristics. From this behavior, we build a demand model for WIC infant formula. We are also working on a supply model that the three major infant formula brands follow in the WIC auction.