TAILIEUCHUNG - Food Marketing Policy Center - WIC Contract Spillover Effects

Mass media still accounts for the bulk of ad spending: television ( percent), magazines ( percent), newspapers ( percent), radio ( percent), and outdoor ( percent). The internet accounts for 8 percent. Internet advertising has grown each year, while allocations to other media categories have consistently declined. The internet accounts for 20 percent of consumer media consumption. Given the current allocation of 8 percent of ad spending, continued growth in online advertising is practically a certainty. Online advertising (Web ) is diverse with numerous possible formats. These include paid search ads, display ads, classifieds, rich media,. | Food Marketing Policy Center WIC Contract Spillover Effects by Rui Huang and Jeffrey M. Perloff Food Marketing Policy Center Research Report No. 118 December 2009 Research Report Series http University of Connecticut Department of Agricultural and Resource Economics WIC Contract Spillover Effects Rui Huang Jeffrey M. Perloff December 2009 Assistant Professor Department of Agricultural and Resource Economics University of Connecticut Professor Department of Agricultural and Resource Economics University of California Berkeley This study was produced under cooperative agreement 43-3AEM-5-80035 with the . Department of Agriculture. We are grateful to our colleagues at the . ERS particularly David Davis and Linnea Sallack for information and helpful comments on our earlier research proposals. We thank David Betson and Betsy Frazao for very helpful comments. Abstract The three major infant formula manufacturers bid state by state to be the exclusive provider to poor families under the Women Infants and Children WIC program and all three compete for non-WIC customers at grocery stores. Previous studies explained the low WIC prices and the higher retail prices as the result of price discrimination. We propose an alternative spillover model. Grocery stores which supply both WIC participants and others provide relatively large amounts of shelf space to the firm that wins the state-level WIC contract. Non-WIC customers inferring from the large shelf space that the WIC brand is superior are more likely to buy it. Because the contract winner benefits from a spillover effect in the lucrative non-WIC retail market firms are willing to bid more aggressively for WIC contracts than in a price discrimination model. The spillover model is more consistent with the data than is the price discrimination model. We show that the retail price markup of the firm that wins the state WIC contract does not change when the contract is awarded but that its shelf .

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