Government Regulations to Mitigate the Shortage of Life-Saving Goods in the Face of a Pandemic

Abstract

During a pandemic, it is essential to secure a broad allocation of life-saving goods, such as medical and protective products, to save lives. However, these goods are often in short supply, due to consumer hoarding, insufficient manufacturing capacity and price gouging. Herein, we develop a game-theoretic supply chain model to evaluate the impact of government regulations on the shortage of life-saving goods and profit within the supply chain. Our model considers three types of regulation: (i) price regulation in the form of a price cap, (ii) purchase regulation or demand rationing and (iii) a combination thereof. The most distinguishing feature of our model is that it captures consumer panic buying, insufficient capacity, price surges and controls on the supply and demand side of the supply chain that are widely observed during a pandemic. The results establish reasonably simple prescriptions for policymakers to design effective and easy-to-implement regulations to mitigate shortages of critical supplies in the face of a pandemic.