Monday, October 25, 2010

Pricing of Baby Formula

My daughter like many babies drinks formula. About a month ago Similac one of the major formula brands announced a large recall of its products because they contained beetle parts. Not surprisingly this recall led us to switch formula to the 50% cheaper store brand. I had been meaning to try to switch earlier, but inertia had set in just like Similac had hoped when the doctors office gave us free samples

At first I was suprised that formula prices for the store brand were cheaper after the recall. One would think if a lot of product was removed from the market (Similac Recall) that prices would go up. The recall may encourage some mothers to breast feed or get their children off of formula sooner, but most children who drink formula can't easily change. Since formula consumption does not change much with price (its an inelastic good) you would think prices would go up after the recall.

Then I remembered the intertia that we had for our daughter's formula brand once we tried a new one. Like the free samples we were offered at the doctors office for Similac, formula brands are likely lowering prices to attract former Similac buyers. Once we get used to buying the new brand prices will likely increase again.

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