Panics and Prices

39 Pages Posted: 9 Apr 2021

See all articles by Yu Awaya

Yu Awaya

University of Rochester

Vijay Krishna

Penn State University

Date Written: April 7, 2021

Abstract

Rumors of a shortage may create higher-order uncertainty and cause panic buying even when there is no real shortage and most consumers are aware of this fact. We study the role of prices in alleviating, or even preventing, panic buying caused by such rumors. Under some circumstances, flexible prices fail to do so and panic buying is the unique equilibrium outcome. In these circumstances, fixed prices prevent panic buying and lead to higher consumer surplus despite the possibility of rationing. Producer surplus may be higher as well.

Suggested Citation

Awaya, Yu and Krishna, Vijay, Panics and Prices (April 7, 2021). Available at SSRN: https://ssrn.com/abstract=3821646. or http://dx.doi.org/10.2139/ssrn.3821646

Yu Awaya (Contact Author)

University of Rochester ( email )

280 Hutchison Road
Rochester, NY 14627
United States

Vijay Krishna

Penn State University ( email )

Kern 516
University Park, PA 16802-3306
United States
814-863-8543 (Phone)
814-863-4775 (Fax)

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