Anticompetitive issues in the infant formula industry /

Abstract

The center of interest of this paper is anti-competitiveness of the infant formula industry. Following the analysis of the industry behavior and legal activities concerning it, this essay hypothesizes that the U.S. government will not succeed in obtaining a legal judgement that would regulate the policies of the major infant formula firms. The infant formula industry is a heavily concentrated oligopoly. The main market share holders serve more than eighty percent of the market. Industry behavior is characterized by simultaneous, almost identical price increases by the industry leaders. The subsidiaries that produce and market formula are the most profitable sections of their organizations. The marketing practices of formula producers are highly controversial. Top producers adhere to the concept of ethical advertising, or advertising formula through licensed physicians only. This type of advertising severely limits the entrance of new competition into the industry and may violate antitrust laws. Demand for formula by women who do not breast-feed is relatively inelastic, which results in a high level of brand loyalty and price following behavior by the producers. Also at the center of interest is the government's Women, Infant, and Children (WIC) Program, which provides formula at low or no cost to mothers in lower income brackets. Numerous court cases were brought against infant formula producers, alleging price fixing behavior and restraint of competition in the market. These cases were not successful in winning judgements against the formula producers so far. The paper argues that the specific market climate, as well as the ambiguity of certain concepts in antitrust statutes, will allow the formula producers to continue with their behavior without the government's interference.