Pricing of Infant Formula Studied : Antitrust: The FTC wants to know whether a lack of competition has allowed the three main producers to artificially increase prices.
The Federal Trade Commission said Tuesday that it has opened a preliminary investigation of the infant formula business to determine whether a lack of competition has artificially raised prices.
The FTC responded to a complaint from Sen. Howard M. Metzenbaum (D-Ohio), who said: “American women may be paying millions of dollars more than they should for infant formula because there is no competition.” And that, he said, results from “an alarming pattern of lock-step pricing.”
Prices rose more than 150% during the 1980s, a period when the price of milk--a major ingredient in the formulas--rose 36%, said Metzenbaum, chairman of the Senate Labor Committee’s antitrust subcommittee.
The three major competitors in the industry are Ross Laboratories, a unit of Abbott Laboratories, which makes the Similac brand; Mead Johnson Nutritionals, a unit of Bristol-Myers Squibb Co., with Enfamil; and Wyeth-Ayerst Laboratories division of American Home Products Corp., with SMA, according to Metzenbaum.
The FTC’s Bureau of Competition has begun a preliminary inquiry, Kevin Arquit, the bureau’s director, said Tuesday at a hearing held by the antitrust subcommittee. The bureau will gather information and then recommend whether a full-scale investigation is justified.
State agencies that buy large amounts of formula distributed under a federal program for poor families “have voiced concern about the pricing and bidding practices in this industry,” Arquit said.
“We have insufficient information about these practices to assess them, but when such concerns are voiced by sophisticated buyers we take them very seriously,” Arquit said.
In an industry where there are just a few companies, “efforts to collude . . . are more likely to be successful,” the FTC official said.
Arquit said the FTC is surprised by “the lack of advertising directed at the ultimate consumer of infant formula.” Doctors and hospitals usually recommend infant formula to mothers, Arquit said.
But most nutritional products and nonprescription drugs “also rely on consumer advertising as a means of competition,” Arquit noted. “Our inquiry will seek to determine whether infant formula manufacturers have decided to eschew this form of competition and, if so, whether this has resulted in higher prices for consumers.”
John C. Kane, president of Ross Laboratories, said infant formula is modestly priced despite an exacting and costly production process.
“Every batch of formula produced by Ross employees is subjected to over 2,000 quality checks,” he told the subcommittee. Special health and safety rules produce a “distinctive need for near perfection,” he said. “Yet the retail cost to feed a baby formula is less than $2 a day.”
The mother of a newborn baby and the doctor “must work as a team to ensure that each baby is receiving the formula most compatible with its needs,” Kane said. “For this reason, we promote our products only through health-care professionals. We do no consumer advertising.”
Metzenbaum said costs to consumers may be high because Ross and the two other major producers play “follow the leader” in setting prices.
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