Rational Panic Purchases During Crises

Abstract

This paper analyzes panic purchases of goods during crises such as a pandemic. Our two-period model incorporates uncertainty about sellers' capacity and about buyers' need for the good. Even if sellers have enough capacity to satisfy demand, there may be shortages because consumers panic purchase (i.e. they buy the good before knowing whether they will need it). Shortages can hence be a self-fulfilling prophecy: consumers inefficiently panic purchase in expectation of shortages. The paper analyzes various measures taken against panic purchasing, such as rationing, price caps, information policy, and restrictions on resellers.

Keywords: Panic purchases, capacity constraints

JEL Classification: C72, L13