Is panic buying really bad?

The current 21-day lockdown in India is witnessing consumers resorting to bulk purchase of many essential goods. While many other consumers do frown at the person with a full trolley in a grocery store, it’s time we take a step back and examine whether bulk buying is actually a rational response meant to benefit others.

Our default paradigm

Consumers in normal times care for freshness of their daily essentials. Since their primary goal is to minimise inventory and maximise freshness, they resort to more frequent purchases of these goods, especially if these are easily available.

This paradigm is so strongly rooted in us that we tend to use it in judging their behavior even during the current times. Bulk buying is seen as hoarding and possibly denying others a chance to buy these goods.

Social distancing

The current lockdown is meant to encourage social distancing, which is a must to prevent the spread of Covid-19. Consumers have been really quick to grasp it. They have intuitively changed their objective function from maximising freshness to minimising their store visits, which is absolutely the right thing to do.

Minimising store visits means the purchase basket would obviously be much bigger. Let’s see the implication of this behavior change. If a person used to buy the essential goods every alternate day, she would have made 10 store visits during the lockdown period. However, if she changes her behavior to buying her weekly requirements at a time, she would now make only 3 visits. Which behavior is better from the social distancing point of view?

It is important to understand that changing one’s objective function has led to this change in behavior – no intention to either hoard or deny others a chance to buy. We must appreciate people who are buying more stuff to bring down their store visits. It actually requires a change in our own paradigm.

Direction of solution

If certain supplies are severely constrained at the moment, rationing may be the only viable option in the very short term. However, since social distancing is the overarching goal of the society at this point in time, it would be impractical and irrational to keep rationing demand as the primary direction of solution. We should instead look at the supply side and do everything we can to increase the frequency and quantum of supplies.

Companies should be encouraged to maximize production of these daily essential goods. Policies should be tweaked to allow them to run their factories 24x7 and allow uninterrupted flow of input materials and labour. Logistics of such finished goods should be allowed to run in an expeditious mode without impediments, both through the online as well as offline channels. We have read about China’s strong e-commerce system as a major contributor to their fast recovery, when social distancing regulations were strictly enforced.

A concerted effort by everyone to tackle the supply side challenges would go a long way in coming out of this lockdown as a winner.