5 ms·

> If everybody is panicking, then the goods go to the panicking people who have the most disposable income. Higher prices often discourage people from over-buy

> If everybody is panicking, then the goods go to the panicking people who have the most disposable income. Higher prices often discourage people from over-buying an item. For example, at the beginning of the pandemic, people sensed toilet paper might soon become hard to find. Its not perishable, so when they found it at a normal price, they stocked up. Why not? They know they'll use it eventually and they don't want to be hunting for it a month later. You don't need to be a super wealthy person to pre-purchase a years worth of TP. But, if TP had been selling for double the normal price, they would have bought less. There's no need to pay pandemic prices for TP that you'll be using next year.

perl4ever 6y ago
"if TP had been selling for double the normal price, they would have bought less" When people are panicking, I think the price elasticity of demand sharply declines, and the price elasticity of supply is small in the short run. Which in turn means that the time value of money skyrockets. This seems like it might be a clue as to why allocating stuff by price in crises is a bad idea.
bb88 6y ago
> Higher prices often discourage people from over-buying an item. Sure if prices are stable. But prices lie on a curve over time. And because prices are on a curve, the price itself is not what the market sees, but instead the curve of the change in price over time. Price hikes cause FOMO. If you need something, and you're worried about the price going up, you're going to buy it now. This has most commonly happened with gasoline. During 9/11, the government had to tell gas stations, e.g., to not hike their prices, because that would cause even more panic -- there was no supply shortage. The second aspect is those that can afford the risk see the sudden spike as an investment opportunity. One of our neighbors in the development used it to buy toilet paper and sell it at $5/roll. They're expecting the price to continue to rise. This is not much different than buying stock when the price of a stock is rising. So yes, in if a market is rational and prices are stable (but high), then you're right. But lately, price spikes seem to be causing fear -- which, btw, people seem to like to game. (Edited for clarity)
ineedasername 6y ago
And the doubled price would keep people who are least able to pay from getting necessary resources, also potentially encouraging them to continue working in risky conditions to earn extra income to do so, helping in some small way to perpetuate the pandemic itself. If you're looking for a market-based solution to hoarding, there are others besides price gouging. Amazon's approach, at least in areas where they have complete control like their pantry, fresh, and whole foods services, can serve as an example: They want happy customers. Happy customers return and buy more stuff. Customers who can't buy what they need because it's sold out due to hoarding are not happy. Amazon institutes a policy for orders through fresh/pantry/whole foods that limit TP purchases to a single package. More customers get needed supplies, stay happy return to buy more, make Amazon more money in the long term. Supply/Demand price curves & price elasticity are not the only rational market-based methods of price discovery. More subtle and long-term considerations breed other strategies.
- epicureanideal 6y ago
  A doubled price of TP isn't going to prevent almost anyone from not having enough. (Yes yes, I know there are edge cases where $5 matters, but weigh that against the alternative.) On the other hand, a doubled price of TP means that hoarding 10,000 packages becomes far more expensive, and less profitable.
  - stormbrew 6y ago
    The 'edge cases' amount to probably at least hundreds of thousands of people in the US alone. Unless you're saying they're not "people who need toilet paper", dismissing them as outliers not to be worried about is just blatantly cruel.
  - ineedasername 6y ago
    You have likely never been in a situation where you have to weigh the purchase of food against the prospect of eviction. I grew up that way, and labelling those circumstances "edge cases" is a tidy way of dehumanizing the situation that many millions of people find themselves in. I won't do the work for you: lookup how many people are on SNAP programs. These are not edge cases. Think market forces can solve all economic problems? Fine. But don't let that blind you to the fact that they have not done it yet and large numbers of people live in poverty and misery at the bad end of the economic scale.
dragonwriter 6y ago
> For example, at the beginning of the pandemic, people sensed toilet paper might soon become hard to find No, it actually became hard to find quite rapidly, and remains so (with some relief as reopening progresses), because people stopped going out and using facilities that use commercial paper and therefore were using lots more home paper, and commercial and home-use toilet paper are different products with different supply chains, neither of which has much excess capacity above normal levels and which cannot easily shift to the other. Hoarding was an overblown factor to which too much was attributed early on by observer’s who don't understand the relevant supply chain dynamics; higher prices would perhaps have reduced it (OTOH, they might not—rapidly rising prices often spur stockpiling-before-it-gets-higher the same way as anticipated or perceived unavailability), but it wouldn't have made a significant difference in the dynamics except that everyone who was able to get toilet paper would have paid even more.
- bostik 6y ago
  To be fair, toilet paper is in a very special product category. It is used by everyone (sudden interest in bidettes notwithstanding), is pretty cheap, weighs very little and takes up an absolutely enormous amount of shelf space relative to its unit cost. When the panic buying started here in the UK, people were stocking up 2x or 3x the amounts they'd normally buy. You don't need that many customers hauling out multiple 24-roll bags to completely exhaust the in-store stock. Sure, the managers would be stocking up as fast as they could, but even with 80+ pallets per restocking round, customers going locust will have them wiped out in no time. This resulted in the very predictable photos of empty supermarket shelves. Toilet paper shelves were particularly empty because they couldn't hold that many sales units in the first place. No wonder the stores imposed limits on how many units of product, or even category, you could buy.
stormbrew 6y ago
This is a very rosy view of what happened. What actually appeared to happen is that people bought up as much toilet paper (and hand sanitizer etc) they could to resell on craigslist/kijiji at extortionary prices because there is demand inelasticity for these things. Doing this made people panic even more, and even more people got in on the gouging, etc. Toilet paper started becoming available at stores again pretty much immediately after those sites started cracking down on this practice. There was plenty of supply, it was just being hoarded. Hell, aggregate demand had not even actually changed. People don't suddenly use more toilet paper in quarantine for no reason.
- gruez 6y ago
  >Toilet paper started becoming available at stores again pretty much immediately after those sites started cracking down on this practice It's premature to assume that the return of normal supply was due to crackdowns of reselling on online marketplaces. There were a bunch of other factors that changed in the same timeframe * stores imposed per-customer limits * prices went up (both in terms of absolute prices, and discounts disappearing) * as hoarders stocked up, their demand also went down(if you just bought 18 month's supply, you'd be less inclined to buy more) * people were being assured by the media that there won't be a TP shortage, which probably decreased the amount of panic buying
- blendergeek 6y ago
  Aggregate demand for home toilet paper rose as consumption of industrial toilet paper fell. Increasing supply of toilet paper is expensive and would not be profitable before toilet paper demand normalizes.

perl4ever 6y ago

"if TP had been selling for double the normal price, they would have bought less" When people are panicking, I think the price elasticity of demand sharply declines, and the price elasticity of supply is small in the short run. Which in turn means that the time value of money skyrockets. This seems like it might be a clue as to why allocating stuff by price in crises is a bad idea.

bb88 6y ago

> Higher prices often discourage people from over-buying an item. Sure if prices are stable. But prices lie on a curve over time. And because prices are on a curve, the price itself is not what the market sees, but instead the curve of the change in price over time. Price hikes cause FOMO. If you need something, and you're worried about the price going up, you're going to buy it now. This has most commonly happened with gasoline. During 9/11, the government had to tell gas stations, e.g., to not hike their prices, because that would cause even more panic -- there was no supply shortage. The second aspect is those that can afford the risk see the sudden spike as an investment opportunity. One of our neighbors in the development used it to buy toilet paper and sell it at $5/roll. They're expecting the price to continue to rise. This is not much different than buying stock when the price of a stock is rising. So yes, in if a market is rational and prices are stable (but high), then you're right. But lately, price spikes seem to be causing fear -- which, btw, people seem to like to game. (Edited for clarity)

ineedasername 6y ago

And the doubled price would keep people who are least able to pay from getting necessary resources, also potentially encouraging them to continue working in risky conditions to earn extra income to do so, helping in some small way to perpetuate the pandemic itself. If you're looking for a market-based solution to hoarding, there are others besides price gouging. Amazon's approach, at least in areas where they have complete control like their pantry, fresh, and whole foods services, can serve as an example: They want happy customers. Happy customers return and buy more stuff. Customers who can't buy what they need because it's sold out due to hoarding are not happy. Amazon institutes a policy for orders through fresh/pantry/whole foods that limit TP purchases to a single package. More customers get needed supplies, stay happy return to buy more, make Amazon more money in the long term. Supply/Demand price curves & price elasticity are not the only rational market-based methods of price discovery. More subtle and long-term considerations breed other strategies.

epicureanideal 6y ago
A doubled price of TP isn't going to prevent almost anyone from not having enough. (Yes yes, I know there are edge cases where $5 matters, but weigh that against the alternative.) On the other hand, a doubled price of TP means that hoarding 10,000 packages becomes far more expensive, and less profitable.
- stormbrew 6y ago
  The 'edge cases' amount to probably at least hundreds of thousands of people in the US alone. Unless you're saying they're not "people who need toilet paper", dismissing them as outliers not to be worried about is just blatantly cruel.
- ineedasername 6y ago
  You have likely never been in a situation where you have to weigh the purchase of food against the prospect of eviction. I grew up that way, and labelling those circumstances "edge cases" is a tidy way of dehumanizing the situation that many millions of people find themselves in. I won't do the work for you: lookup how many people are on SNAP programs. These are not edge cases. Think market forces can solve all economic problems? Fine. But don't let that blind you to the fact that they have not done it yet and large numbers of people live in poverty and misery at the bad end of the economic scale.

dragonwriter 6y ago

> For example, at the beginning of the pandemic, people sensed toilet paper might soon become hard to find No, it actually became hard to find quite rapidly, and remains so (with some relief as reopening progresses), because people stopped going out and using facilities that use commercial paper and therefore were using lots more home paper, and commercial and home-use toilet paper are different products with different supply chains, neither of which has much excess capacity above normal levels and which cannot easily shift to the other. Hoarding was an overblown factor to which too much was attributed early on by observer’s who don't understand the relevant supply chain dynamics; higher prices would perhaps have reduced it (OTOH, they might not—rapidly rising prices often spur stockpiling-before-it-gets-higher the same way as anticipated or perceived unavailability), but it wouldn't have made a significant difference in the dynamics except that everyone who was able to get toilet paper would have paid even more.

bostik 6y ago
To be fair, toilet paper is in a very special product category. It is used by everyone (sudden interest in bidettes notwithstanding), is pretty cheap, weighs very little and takes up an absolutely enormous amount of shelf space relative to its unit cost. When the panic buying started here in the UK, people were stocking up 2x or 3x the amounts they'd normally buy. You don't need that many customers hauling out multiple 24-roll bags to completely exhaust the in-store stock. Sure, the managers would be stocking up as fast as they could, but even with 80+ pallets per restocking round, customers going locust will have them wiped out in no time. This resulted in the very predictable photos of empty supermarket shelves. Toilet paper shelves were particularly empty because they couldn't hold that many sales units in the first place. No wonder the stores imposed limits on how many units of product, or even category, you could buy.

stormbrew 6y ago

This is a very rosy view of what happened. What actually appeared to happen is that people bought up as much toilet paper (and hand sanitizer etc) they could to resell on craigslist/kijiji at extortionary prices because there is demand inelasticity for these things. Doing this made people panic even more, and even more people got in on the gouging, etc. Toilet paper started becoming available at stores again pretty much immediately after those sites started cracking down on this practice. There was plenty of supply, it was just being hoarded. Hell, aggregate demand had not even actually changed. People don't suddenly use more toilet paper in quarantine for no reason.

gruez 6y ago
>Toilet paper started becoming available at stores again pretty much immediately after those sites started cracking down on this practice It's premature to assume that the return of normal supply was due to crackdowns of reselling on online marketplaces. There were a bunch of other factors that changed in the same timeframe * stores imposed per-customer limits * prices went up (both in terms of absolute prices, and discounts disappearing) * as hoarders stocked up, their demand also went down(if you just bought 18 month's supply, you'd be less inclined to buy more) * people were being assured by the media that there won't be a TP shortage, which probably decreased the amount of panic buying
blendergeek 6y ago
Aggregate demand for home toilet paper rose as consumption of industrial toilet paper fell. Increasing supply of toilet paper is expensive and would not be profitable before toilet paper demand normalizes.