Since 1972, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) has provided free infant formula to low-income families. Today, infant formula purchases through the WIC program account for roughly half of all infant formula purchased in the United States. Beginning in the late 1980s, WIC agencies, in an effort to contain rising program costs, secured rebates from formula manufacturers through sole-source contracts for the infant formula they purchase. During 1980-2002, infant formula did not substantively change but real wholesale prices nearly doubled. This research examines the impact of providing free formula through the WIC program and its use of sole-source contracts to control program costs on the wholesale price of infant formula. The findings show that providing free formula to low-income families is the primary factor in the growth in real wholesale prices of formula and that sole-source contracts not only have reduced the cost of formula to the Government but also have retarded wholesale price growth
