Stockpiling and Shortages (the “Toilet Paper Paper")

Tilman Klumpp () and Xuejuan Su ()
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Xuejuan Su: University of Alberta, Department of Economics, Postal: 8-14 HM Tory Building, Edmonton, AB, T6G 2H4

No 2021-2, Working Papers from University of Alberta, Department of Economics

Abstract: Consumer stockpiling of everyday household items such as toilet paper occurred in the wake of the COVID-19 pandemic, resulting in shortages of these goods in stores. Both phenomena reinforce each other: The expectation of shortages causes stockpiling behavior, which amplifies the shortages experienced by consumers, which in turn encourages more stockpiling. In this paper, we examine this feedback loop. When aggregate supply is insufficient to meet aggregate demand but prices cannot adjust to clear the market, there can be multiple equilibria featuring stockpiling to different degrees. Moreover, even when the fundamental supply-demand imbalance is small, the degree of equilibrium stockpiling can be significant. Stockpiling reduces welfare, and this welfare loss can be particularly severe in the transitional phase following a supply shock, during which households build up inventories.

Keywords: storage; consumer inventories; stockpiling; multiple equilibria; rationing; mean-field games; search models (search for similar items in EconPapers)
JEL-codes: C61 C62 C73 D15 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-06-23, Revised 2024-12-31
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2021_002

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