Incentives for Non-Price Competition in the California WIC Program

• Agricultural Economics Workshop

Date and Location

Thursday, October 9, 2014, 1:10 PM - 2:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Institutional details of the California WIC Program's food assistance component give rise to a retailer who does not compete in price for perfectly price inelastic WIC consumers. A theoretical model of non-price competition hypothesizes that pure non-price competition in brands mimics price competition whereby these retailers carry more and better brands under intense spatial competition; and, that retailers will either minimally or maximally differentiate in horizontal (e.g, physical) space. I use a unique dataset on these retailers' locations and brand offerings as well as participants' food benefit redemption patterns to empirically confirm that retailers compete in brands. Namely, retailers carry more and better brands in salient product categories when facing more competitors, which, in turn, reduces attrition and increases market share. The results also suggest that maximal horizontal differentiation prevails, allowing the retailers to minimize costly brand competition.

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