COVID-19 Pandemic: Social Distancing, Public Policy, and Market Response

Abstract

The outbreak of COVID-19 has become a worldwide concern for consumers, businesses, and public policy makers. Social distancing is now a top consideration for consumers when deciding where and how to shop, which reduces their willingness to shop in physical stores with others who may carry the virus. In this paper, we use a game-theoretic model to analyze how consumers' preference for social distancing affects store profits, consumer surplus, social welfare, and the equilibrium spread of COVID-19 among consumers when they, along with stores and online delivery platform, strategically respond to social distancing. We find that the preference for social distancing 1) decreases store profits in a monopoly but can increase them in a duopoly, 2) strictly benefits the delivery platform, and 3) weakly decreases consumer surplus and social welfare in both a monopoly and a duopoly. Meanwhile, the preference for social distancing reduces the spread of COVID-19 by reducing store traffic, but this positive effect only arises when stores sell online through their own channels. When stores sell online through a third-party platform, consumers' preference for social distancing does not affect the spread of COVID-19 amongst shoppers. Moreover, we find that, while facilitating delivery services can be ineffective in reducing the spread of COVID-19, subsidizing online shopping and regulating third-party platforms can help contain the virus.