Product Responses to Income-Based Subsidies in the U.S. Infant Formula Industry

Abstract

In this paper, I develop a structural supply and demand model of the infant formula industry to evaluate the role that endogenous firm product offerings play in determining equilibrium market outcomes and welfare measures. Using the structural model's preference and cost estimates, I evaluate counterfactual scenarios which increase the proportion of infant formula voucher recipients and show i) the policy's negative effect on consumers without vouchers, and, ii) how the magnitude of consumer, producer, and total surplus depend on firms' adjustment margins.