Supply disruption management under consumer panic buying and social learning effects

Abstract

This study investigates the impact of consumers’ social learning (SL) behavior on their purchase decisions under supply disruption risk, and accordingly, how retailers should take this into account and optimize their inventory ordering strategy. We develop a model with two batches of consumers. The first batch of consumers evaluates the potential supply disruption risk and decides whether to stockpile extra units for future consumption (i.e., panic buying). Their purchase decisions influence the second batch of consumers via social learning. We derive the optimal inventory ordering policy for the retailer and evaluate the retailer’s loss of profit if the impact of SL is not taken into consideration. We show that when the portion of panic buying consumers among the first batch (which we define as the initial panic intensity) is at a moderate level, consumer panic buying and SL behaviors can be beneficial for the retailer and the social welfare. In contrast, if the initial panic intensity is very low or very high, SL can hurt the retailer’s profit and the total social welfare.