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Teaching activity

In the News Teaching Activity – Lack of competition in the baby milk formula market is adding to the cost-of-living crisis (Dec 2023)

Elizabeth Veal

4th December 2023

The CEO of Iceland has highlighted the lack of competition in the baby formula market, arguing producers are exploiting those struggling in the cost-of-living crisis.

An argument has broken out over baby formula – an essential necessity for many parents.

In one corner there is Iceland's CEO, Richard Walker, who accuses baby formula manufacturers of exploiting new parents by increasing prices more than production costs and well ahead of the rate of inflation. He is joined by the Competition and Markets Authority (CMA) which is investigating. Walker, with the First Steps Nutrition Trust supports a price cap on baby formula and other possible supportive policy measures – the Shadow Health Secretary seems to be on board too.

In the other corner big global companies that manufacturing baby formula, such as Danone and Nestlé, are responding, defending their pricing and the competitiveness in the market.

Iceland boss hits out at parent ‘exploitation’ in baby milk market | Food & drink industry | The Guardian

1 According to the article, what are the market failures in the baby formula market? Support your answer with some evidence.

2 Using the article and your own knowledge, apart from introducing a price cap, what other policy measures could be used to address the market failures?

3 Given the information about the market structure for baby formula, do you think there is a case for the CMA to step in to boost competition?

Download our suggested answers for this resource here

Elizabeth Veal

Liz has taught Economics for over 25 years, including several years as Head of Economics at leading schools.

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