Retailing under panic buying and consumer stockpiling: Can governmental intervention make a difference?

Abstract

In the media, panic buying featured as one of the top headlines at the outset of the COVID-19 pandemic. This type of consumer behavior was clearly triggered by concern that supermarkets might run out of food and other basic goods. Could regulation or another form of intervention mitigate panic buying? To study this question, we consider the dynamics of retailing operations in response to such behavior. Assuming that consumer stockpiling is triggered by a sudden drop in the level of retail stock, we show that a profit maximizing retailer will not necessarily employ all available resources to ease the situation. In particular, the optimal strategy for such a retailer is to employ a “wait and see” (intentional scarcity) policy at the initial stage of panic buying. This stage is critical, as it could lead to stock inventories reaching a minimal level, which in turn could lead to major instabilities in the market. We show that neither income-tax relief for retailers, nor the provision of subsidies to support overtime working, are useful tools. On the other hand, a lower cap-price can increase retail prices at the critical initial stage and decrease them thereafter. This strategy is found to increase the supply rate, in contrast to the usual impact of imposing a price ceiling.