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A simple model of panic buying

Author

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  • Schmidt, Robert C.
  • Westbrock, Bastian
  • Hoegen, Hendrik

Abstract

We study a simple dynamic model to rationalize episodes of excess demand that resemble “panic buying” episodes in actual markets. In such episodes, consumers compete for a scarce good. Scarcity is triggered by an anticipated negative supply shock that takes place in a future period with positive probability. To avoid the risk of non-consumption, consumers can stockpile the good in earlier periods. We demonstrate that these stockpiling decisions can reinforce each other, creating a cascade of excess demand in several periods similar to “panic buying” episodes observed, for instance, during the Corona crisis. In our model, stockpiling is always detrimental to welfare, and we develop a suitable policy response.

Suggested Citation

  • Schmidt, Robert C. & Westbrock, Bastian & Hoegen, Hendrik, 2023. "A simple model of panic buying," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 268-286.
    • Handle: RePEc:eee:jeborg:v:216:y:2023:i:c:p:268-286
    DOI: 10.1016/j.jebo.2023.10.020
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    References listed on IDEAS

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    Cited by:

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    2. Tsai, I-Chun & Chen, Han-Bo & Lin, Che-Chun, 2024. "The ability of energy commodities to hedge the dynamic risk of epidemic black swans," Resources Policy, Elsevier, vol. 89(C).
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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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