Panic Buying and its Repercussions



Panic buying is a human behavior marked by a rapid increase in purchasing volume causing the price of the commodities to surge. This kind of behavior can be habitually witnessed just before or after some sort of disaster. Long queues and empty shelves are its direct impact as people rush to the market with inelastic supply and consume more quantities than what they require. This leads to a self-fulfilling prophecy as the false expectation of shortage in supplies comes true due to excessive hoarding. This irrationality of people has innumerable consequences that disrupt the economy as a whole. The Spanish flu tripled the sales of the over-the-counter remedies, the hyperinflation in Germany led to multi-commodity panic buying, the Cuban missile crisis increased the sales of canned food, and The USA experienced a shortage of toilet papers whilst coronavirus. These events highlight the fear among people towards the rumored supply expectations. This concept is not foreign to India as frequent natural emergencies, political manipulation, and social beliefs tend to elevate panic buying occurrences.

 

Consumer Behavior as the Mainspring

In survival psychology, individuals undergo certain major behavioral changes following any unanticipated events. Consumer’s purchasing decisions are largely governed by their society and peers’ choices. The fear of being left out entails the bandwagon effect among the people, where we follow what society does. This ideally demonstrates the impact of social learning on consumers. Social learning is a conception where an individual embraces behavior that is being followed by society. The process of learning is much expeditious, attributed to the much available social media and telecommunication services.

The magnitude of the panic is an important governor of social learning in the case of panic buying. The intensity of panic stimulates an individual’s decision to purchase. If the remaining consumers observe that the panic intensity is higher among their peers, they tend to consume more than usual. Similarly, if the remaining consumers observe that their neighbors are not panicking much, they gain confidence about the future supply of commodities. This kind of normative influence and observational learning tends to impact a larger population. The perceived threat, perceived scarcity, fear of the unknown, and coping behavior to control the situation are some of the vital elements of consumer behavior that catalyze panic buying. These aforementioned elements that lead to panic buying revolve around one genesis, namely the social trust.

 

Supply Chain Effects

Having categorized the effects of panic buying as negative and positive, it is unquestionable that the supply chain is being interrupted from its normal production and supply practices. Panic buying during the coronavirus pandemic led to problems that were beyond control. The perpetual dispute between the haves and have-nots aggravates the negative consequence of panic buying, thus affecting social welfare. Governments and sovereigns of all the nations over the globe are trying to arrange sufficient healthcare facilities such as masks, safety kits, ventilators, medicines, etc. to respond positively to the demand shock and supply stagnation. The governments are banning exports of these materials to support national supply. This familiar economic model has led to a notable advantage to the wealthier economies. Panic buying by wealthier countries reduces the access to affordable, and reliable health care necessities. One can observe a similar trend but in the micro-level where deep-pocket individuals stockpile necessary commodities leaving merely anything for poor families. The retailer and the supplier tend to increase the intended inventory investment as the marginal revenue of the commodity is higher when there is a supply cap and high demand.

The health of the supply chain can proportionally influence the retail market’s profitability. An illustrious concept invented by Jay Forrester, an American engineer, expounds rightfully the effect of panic buying on the supply chain. This effect occurs when retailers become highly elastic to an increase in demand for their product. This phenomenon can be explained with an illustration. A retailer holds an inventory of 100 units of a commodity out of which 20 is sold every day. Thus, he orders 20 units of replacement from the distributor. One day due to panic buying the retailer sold 70 units to the consumers, thus envisaging higher sales the next day he ordered 100 units from the distributor to meet the anticipated demand. The distributor orders 200 units instead of just 100 from the supplier. Ultimately the supplier produces 300 units of the commodity thus anticipating higher revenue in a perfectly competitive market set up with the given price. This continuing misalignment trend in the supply chain goes up and down just like a whip when stroked. This effect gives rise to delays in retail stock, disruption in labor supply, and manufacturing backorders.

 

Conclusion

Panic buying may happen in stimulus for several reasons and this has the power to raise the overall price of goods and services thus taking away necessary goods out of the citizen’s hands. Thus it becomes the responsibility of the government and the people to remain calm and take judicious actions that are fair to society and self. Thus it is very important to buy commodities and not hoard them to ensure fair availability to all the people.

 

Key Takeaways:

How to prevent panic buying?

  1. Efficient information rollouts – The state and the suppliers must signal about the supply information to control the panic. The process of signalling must be done repeatedly and efficiently using effective means such as social media. A cap must be availed on the fake news that tends to create panic among the people. The state must try to build a nation with responsible citizens with transparent information.

  2. Sufficient rationing mechanisms must be developed to ensure enough resources available to people who cannot afford them. The rationing must be done cautiously to ensure the availability of resources to the rest of the population.

  3. Anxiety provoking discussions among social contacts must be controlled to a greater extent to limit the panic. At an individual level, panic buying may result in poor self-regulation, thus measures that reduce anxiety effectively and impulsive control will reduce panic buying.



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