Widespread panic buying, spurred by the Coronavirus, has led to now infamous shortages of hand sanitizer, rubbing alcohol, and especially toilet paper. There have been attempts by psychology professionals to provide explanations. The explanations provided can be summed up to what a lay-person may consider a “herd mentality”. Psychotherapist Bethany Marshall attributes the consumption patterns to social contagion,
Social contagion is a necessary part of survival, and feeling threatened triggers our primitive instincts…Seeing people stock up on toilet paper changes the perception of how necessary it is. When you mimic that behavior, you experience a psychological reward that you’ve done something right…You see people on television with large packages of toilet paper sticking out of their grocery carts. As the biggest item in the store, they can’t be concealed in a bag so they’ve become a visual symbol of preparednessBethany Marshall, PhD.
CNN compiled a list of reasons for panic buying by 3 distinguished psychologists, which includes:
- Reaction to conflicting messages, unclear direction from officials, and others panic buying
- Natural want to over prepare
- Feel for sense of control
Unfortunately, these evaluations do not provide insight into the consequential predicament presented by the panic buying. The “consequential predicament” is key to understanding how those who are relatively mild mannered and level headed about the Coronavirus are still affected by panic buying. Nor do the evaluations assess the importance of pricing in consumption patterns. Both the “consequential predicament” and pricing will be discussed further.
The Economic Incentive to Hoard
Despite what reasons there are for the inordinate levels of consumption, the fact is that those inordinate levels of consumption are happening and leaving certain goods absent from shelves for unspecified amounts of time.
What this means for consumers is that they face a consequential predicament; if they decide to postpone their shopping or only purchase an amount of goods fit for short term consumption, they may not have opportunities to purchase certain goods for extended periods of time. Simply put: since people are hoarding and depleting available goods, if others do not similarly hoard, they may have to go without until heaven knows when. If one does not take what is available, someone else definitely will and there will be some time before adequate re-stocking. This means those who do not hold the dire view of the Coronavirus are nevertheless behooved to hoard for their own benefit as if they did.
There may be incentives to purchase in moderation due to consideration of others but the previously mention factors, along with the powerful sway of self-preservation, is more than enough to suppress this incentive for most people.
The Relevance of Pricing
Pricing has long been realized to be an indispensable indicator of scarcity. In general, when a sought after good becomes scarce for whatever reason, its price increases. The higher price places consumers in a situation where they must prioritize their desired goods given their available funds. This incentives more careful and thrifty consumption patterns. Higher prices dissuades purchasing more than is necessary to meet a particular end while still allowing consumers to take into account essential needs and how best to obtain them.
For example, a group of people may each purchase 4 weeks worth of toilet paper at $X. 4 weeks worth of toilet paper may be “overkill” in the majority of circumstances, but if $X is an affordable price and there’s no hassle of having too much toilet paper, there is little reason to moderate toilet paper consumption even if 4 weeks worth is too much. If the price of toilet paper goes up to $2X, the same group of people may not be willing to pay the higher cost of having extra amounts of toilet paper since this will lead to less funds for other goods they may also want such as food, health supplements, etc.. In this scenario, there is an incentive for people to lower their consumption of toilet paper to what is essential to them in order to free up enough funds for other important goods. The end result is less shortages and ends being efficiently met given the available resources.
The Damages of Price Controls
While stores across the nation are experiencing unfortunate shortages of hand sanitizer and toilet paper, there is an even more unfortunate over-abundance of disastrous policy emanating from the political-sphere. A prime example is the newly implemented price ceilings in San Antonio, TX’s Bexar County. Judge Nelson Wolff (D) ordered groceries, beverages, toilet articles, ice, medicine, medical supplies and meals to keep the same prices as they did on Thursday 11:59 pm.
As mentioned before, higher prices cause consumers to adopt more frugal consumption patterns. If prices are held constant when they would have otherwise increased due to scarcity, the incentive for prudence is removed.
If stores have not placed limits on the amount of certain goods any given person can buy, people who do not arrive at stores early enough and/or pick up the goods quick enough will likely have to go without those goods for unspecified amounts of time. Since the artificially lower prices lessens the economic penalty of buying above ones needs, people who are in a position to pick up goods before others are likely to deplete the supply before others are able to make purchases. This situation harms those who cannot arrive at stores before the crowd. Those who work later than the average person or who are physically debilitated without available help are likely to be negatively impacted.
Yet, if stores have placed limits on the amount of certain goods any given person can buy, this hampers consumers ability to optimize their bundle of goods. Each individual looking to buy goods may vary in disposable income, dependents needed to care for, underlying health conditions, and other factors that affect consumption patterns. Given the differences in these factors, each individual’s optimal amount of certain goods may also vary. For example, a person who cares for multiple children and a spouse is more often than not going require more goods than a loner.
Also, what constitutes an optimal bundle of goods may change over time. For instance, a light eater who lives alone may not have much need for vast amounts of toilet paper and opt to spend money on something else, like teeth whitening products. If this same person later suffers from diarrhea, the optimal bundle for this person would include less teeth whitening products and more toilet paper than before the diarrhea. This same person may have been fine with a limit of 2 units of toilet paper before his bowel problems, but when the problem occurs, the same person may need double that amount. The store limit in this case hinders the person from maximizing their well-being. Considering the incalculable changes that can occur in a person’s life that warrants a different consumption bundle and the amount of people who may rely on stores with purchasing limits to consume goods, this can have a pronounced effect on the general welfare.