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Learning to Hoard: The Effects of Preexisting and Surprise Price-Gouging Regulation During the COVID-19 Pandemic

R. Chakraborti () and G. Roberts ()
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R. Chakraborti: Christopher Newport University
G. Roberts: Weber State University

Journal of Consumer Policy, 2021, vol. 44, issue 4, No 1, 507-529

Abstract: Abstract Theory suggests anticipation of shortages stemming from price regulation can motivate households to stock up more and thereby aggravate the regulation-induced shortage. We test this theory on online shopping searches for two typically store-bought staples: hand sanitizer and toilet paper. Combining (i) interstate variation in type of price-gouging regulation—preexisting versus surprise versus none, (ii) their temporally staggered implementation, and (iii) the demand surges for hand sanitizer and toilet paper during the COVID-19 pandemic facilitates identifying the impacts of different price-gouging regulation on consumer searches. Our results are consistent with price-gouging regulation–driven anticipatory hoarding. Difference-in-differences estimates reveal that states with preexisting-regulation experience the largest increases in post-implementation search proportions for both products. Accounting for potential endogeneity of implementation using a nearest-neighbor matching strategy reveals states that make surprise announcements of new regulation during the pandemic also experience larger increases in post-activation hand sanitizer search proportions than states without any such policy, but smaller increases than what preexisting-law states experience. These results corroborate the theoretical predictions about consequences of regulation-induced anticipation of shortages and inform the current policy debate surrounding impacts of price-gouging laws. Fundamentally, our results indicate behavioural responses to policy evolve as experience reveals the effects of the policy, and this evolution might influence the welfare consequences of the policy.

Keywords: COVID-19; Price gouging; Shortages; Price controls; Panic buying (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10603-021-09493-1

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