Wic and the Price of Infant Formula

This article presents an economic model of a national infant formula market that quantifies the effects of sole-source contracts on infant formula prices, on producer earnings, and on the taxpayer cost of providing infant formula to participants of the Special Supplemental Nutrition Program for Women, Infants, and Children. It shows that the behavior of paying customers, manufacturers, and retail stores determines the value of local sole-source contracts to manufacturers and that this value motivates manufacturers to acquire sole-source contracts and make rebate payments that contain the taxpayer cost of providing infant formula to program participants.