Research

Job Market Paper

Testing Vertical Relationships in the US Infant Formula Market: Implications for Government Costs and Welfare

  • Abstract: The U.S. Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides free infant formula to low-income households, serving around 39% of US infants and accounting for over half of all domestically sold formula—making it a substantial government expenditure. To reduce government costs, WIC awards exclusive contracts to manufacturers offering the lowest net price in each state and collects rebates from the winning bidders via public auction, effectively creating government-sanctioned monopolies in WIC markets. The broader implications of this policy hinge on vertical relationships between manufacturers and retailers, which remain poorly understood. I identify the vertical relationship as best characterized by two-part tariffs, where retailers pay fixed fees to manufacturers and wholesale markups are zero. This finding challenges the common but untested two-part tariff model with resale price maintenance assumption (RPM) in the literature. Counterfactual simulations show that under RPM, average retail prices would be 3.8% higher, consumer surplus would be 7.4% lower, and producer surplus would be 2.2% higher. Disaggregated results reveal substantial heterogeneity across states and years: winners may raise or drop prices while losers consistently reduce prices though to varying degrees. Together, these findings demonstrate that conduct assumptions critically shape welfare outcomes.
  • Poster presentation at the 2025 AAEA Annual Meeting
  • Due to NielsenIQ data sharing policies, the full paper cannot be publicly posted. I am happy to share a copy upon individual request.

Publications

  • Wang, Y. 2024. Do High Rebates Guarantee High-Cost Savings? Purdue Agricultural Economics Report, May 15, 2024. PAER-2024-19.
  • Consoli, S., Fraysse, E.A., Slipchenko, N., Wang, Y., Amirebrahimi, J., Qin, Z., Yazma, N., and Lybbert, T.J., 2022. A “Sideways” Supply Response in California Winegrapes. Journal of Wine Economics 17(1), 42-63
  • Zhao, X., Wang, Y., and Daun, Y. 2018. Study on the effect of the employment structural adjustment on land transfer of reservoir resettlement –– based on immigrants in south-to-north water diversion project. [In Chinese]

Works in Progress

  • Capacity Constraints and Strategic Bidding in Government Procurement: Evidence from WIC Infant Formula Rebate Auctions
  • Supply shock and infant formula prices: evidence from the US
  • Markets for Private Label and National Brand Beef, With Joseph V Balagtas, Meilin Ma, and Juan P. Sesmero.

Policy & Extension Outputs

These projects translate research insights into tools, reports, and visualizations for government and industry stakeholders.

  • USDA Report: Processor-Retailer Relationship in the US Beef Supply Chain: Preliminary Analysis Report (With Joseph V Balagtas, Meilin Ma, and Juan Pablo Sesmero)
  • Regional Industry Cluster Drill-Down Series (With Indraneel Kumar and Roberto Gallardo)
  • Indiana Creative Economy 2022 Report (With Indraneel Kumar and Roberto Gallardo)