Retailer's ordering decisions with consumer panic buying under unexpected events

Abstract

A disruption in demand caused by unexpected events, such as extreme weather and epidemics can trigger panic buying by consumers, adversely affecting firms' inventory management. From the demand side, focusing on event-sensitive products, this paper develops an analytical model to examine how consumer panic buying behaviors resulting from unexpected events affects a retailer's ordering decisions and expected profits under both practices without and with purchase restriction policies. The main results are as follows. First, consumer panic buying behavior pushes the retailer to increase the order quantity in the first period and reduce the order quantity in the second stage. Second, regardless of the possibility of unexpected events, a moderate panic buying level is most beneficial to the retailer. Third, a large inventory capacity is always advantageous for the retailer to cope with unexpected events without a purchase restriction policy, whereas only when the inventory capacity is at a moderate level, the retailer can benefit from consumer panic buying under a purchase restriction policy. In addition, the impact of consumer panic buying behavior on the retailer's profit remains unchanged under the risk of supply interruption. However, considering an emergency order, when panic buying is not too intensive to lead to a loss of demand in the first period, it can still harm the retailer in some cases.