Institution: Department of Economics🗡， Texas A&M University
Time: 4:00-5:30pm, Thursday, June 23rd
Location: RM614, Fanhai Building
Title: Two-Channel Competition in the US Infant Formula Market
Abstract: This paper provides a structural analysis of the price competition in US infant formula market where consumers are classified into two categories: regular consumers who pay the retail prices and women-infant-children (WIC) program participants whose purchases are paid by the government. The competition of firms in this market is captured by a two-stage game. In the first stage, firms set their national wholesale prices. In the second stage, firms participate in procurement auctions to compete for the exclusive right to serve the WIC markets with their bids being rebates to their wholesale prices. We propose a theoretical model to describe the competition in the market and characterize the equilibria. Using retail data of infant formula and bidding record of the procurement auctions, we estimate the structural model and find that winning the WIC market increases the demand in regular retail market by 22%. We further conduct counterfactual analyses to investigate the effects of alternative auction format and buyer alliance.
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