Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers?

Although the Women, Infants, and Children (WIC) food-assistance program purchases over half of all U.S. infant formula, I find it does not affect wholesale prices. I estimate infant-formula marginal cost and find it low compared with the wholesale price, implying large price-cost markups. But I find the program does not affect markups. Instead, the program gives preference to one firm’s brand, and that brand attains a prominence in stores that results in larger sales to nonparticipants. The preference is valuable to firms and they bid with rebates to attain exclusive approved status, which results in significant cost savings to the program.