Learning to Hoard: The Effects of Preexisting and Surprise Price-Gouging Regulation during the COVID-19 Pandemic

Chakraborti, R., Roberts, G. Learning to Hoard: The Effects of Preexisting and Surprise Price-Gouging Regulation During the COVID-19 Pandemic. Journal of Consumer Policy (2021), Forthcoming, September 2021. https://doi.org/10.1007/s10603-021-09493-1

22 Pages Posted: 13 Aug 2020 Last revised: 3 Aug 2021

See all articles by Rik Chakraborti

Rik Chakraborti

Christopher Newport University - Department of Economics

Gavin Roberts

Weber State University (WSU) - Department of Economics

Date Written: August 12, 2020

Abstract

Theory suggests anticipation of shortages stemming from price regulation can motivate households to stock up more and thereby aggravate the regulation-induced shortage. We test this theory on online searches for two typically store-bought staples: hand-sanitizer and toilet paper. Combining (i) interstate variation in type of price-gouging regulation---preexisting versus surprise versus none, (ii) their temporally staggered implementation, and (iii) the demand surges for hand-sanitizer and toilet paper during the COVID-19 pandemic facilitates identifying the impacts of different price-gouging regulation on consumer searches. Difference-in-difference estimates reveal that compared to states which never implement price-gouging regulation, states with preexisting regulation experience the largest increases in post-implementation search proportions for both products. Accounting for potential endogeneity of implementation using a nearest-neighbor matching strategy reveals that states without preexisting laws that make surprise announcements of new regulation during the pandemic also experience larger increases in post-implementation search proportions than states without any such policy, but smaller increases than what preexisting-law states experience. These results corroborate the theoretical predictions about consequences of regulation-induced anticipation of shortages, and informs the current policy debate surrounding impacts of price-gouging laws. Fundamentally, our results indicate household responses to policy evolve as they learn about the effects of the policy, and this evolution might influence the welfare consequences of the policy.

Keywords: COVID-19, Hoarding, Price Gouging, Shortages, Price Controls, Panic Buying, Regulation

JEL Classification: D04, D12

Suggested Citation

Chakraborti, Rik and Roberts, Gavin, Learning to Hoard: The Effects of Preexisting and Surprise Price-Gouging Regulation during the COVID-19 Pandemic (August 12, 2020). Chakraborti, R., Roberts, G. Learning to Hoard: The Effects of Preexisting and Surprise Price-Gouging Regulation During the COVID-19 Pandemic. Journal of Consumer Policy (2021), Forthcoming, September 2021. https://doi.org/10.1007/s10603-021-09493-1, Available at SSRN: https://ssrn.com/abstract=3672300 or http://dx.doi.org/10.2139/ssrn.3672300

Rik Chakraborti

Christopher Newport University - Department of Economics ( email )

Luter Hall 227
Newport News, VA 23606
United States

Gavin Roberts (Contact Author)

Weber State University (WSU) - Department of Economics ( email )

Ogden, UT 84408-3807
United States

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