A toilet paper run is like a bank run. The economic fixes are about the same



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Alfredo R. Paloyo, University of Wollongong

Panic buying knows no borders.

Shoppers in Australia, Japan, Hong Kong and the United States have caught toilet paper fever on the back of the COVID-19 coronavirus. Shop shelves are being emptied as quickly as they can be stocked.




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Why are people stockpiling toilet paper? We asked four experts


This panic buying is the result of the fear of missing out. It’s a phenomenon of consumer behaviour similar to what happens when there is a run on banks.

A bank run occurs when depositors of a bank withdraw cash because they believe it might collapse. What we’re seeing now is a toilet-paper run.

Coordination games

A bank holds only a fraction of its deposits as cash reserves. This practice is known as “fractional-reserve banking”. It lends out as much of its deposits as it can – subject to a banking regulator’s capital-adequacy requirements – making a profit from the interest it charges.

If every customer simultaneously decided to withdraw all of their deposits, the bank would crumble under the liability.

Why, then, do we not normally observe bank runs? Or toilet paper runs?

The answer comes from Nobel-winning economist John Nash (played by Russell Crowe in the 2001 movie A Beautiful Mind). Nash shared the Nobel prize in economics for his insights in game theory, notably the existence of what is now called a “Nash equilibrium” in “games”.

Both banking and the toilet-paper market can be thought of as a “coordination game”. There are two players – you and everyone else. There are two strategies – panic buy or act normally. Each strategy has an associated pay-off.

If everyone acts normally, we have an equilibrium: there will be toilet paper on the shop shelves, and people can relax and buy it as they need it.

But if others panic buy, the optimal strategy for you is to do the same, otherwise you’ll be left without toilet paper. Everyone is facing the same strategies and pay-offs, so others will panic buy if you do.

The result is another equilibrium – this one being where everyone panic buys.

Preventing coordination failure

So either no one panic buys (a successful coordination) or everyone does (a coordination failure).

The fear of everyone else panic buying has made some people panic buy as well. But those who are panic buying are not acting irrationally. They’re not stupid! They are executing an optimal strategy because the fear has a basis in reality: many people have experienced going to supermarkets and finding empty shelves.




Read more:
Stocking up to prepare for a crisis isn’t ‘panic buying’. It’s actually a pretty rational choice


Obviously, though, only one of these equilibria is desirable. So what can we do to prevent coordination failure?

One solution is a market mechanism – allowing the price of toilet paper to increase to reduce demand. This is unlikely to happen, though, given the potential backlash associated with “price gouging”.

There are two other solutions.

The first is for the government to step in as guarantor.

In 2008, for example, the market crash engendered by the subprime mortgage crisis left multiple Australian banks vulnerable to depositor runs. In response, the Australian government announced a guarantee scheme for deposits. Depositors, assured the government would cover their losses even if their bank collapsed, no longer had the fear of being caught out by not withdrawing their savings.

In the case of toilet paper, the government acting as guarantor might involve holding a strategic stockpile of toilet paper. But all things considered – from logistics to costs – this probably isn’t a very good idea.

The second solution is to ration the commodity – putting limits on the amount a customer can buy. Imperfect though these buying limits are, they are feasible, as shown by the restrictions put in place by Australia’s supermarkets.The Conversation

Alfredo R. Paloyo, Senior Lecturer in Economics, University of Wollongong

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Why are people stockpiling toilet paper? We asked four experts



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Michael Lucy, The Conversation

As coronavirus continues to spread around the world, anxiety is rising in Australia. Shoppers fearful of quarantine measures have been stocking up on supplies to last out a week or two of isolation.

Recent days have seen reports of shortages of hand sanitiser and warnings that batteries and other electronic items could be next. However, the surge in demand for one particular commodity has seen supermarket shelves stripped bare: toilet paper.

It’s not just Australians. Shops in Japan, the US and New Zealand have also run low on the precious sanitary rolls. In Hong Kong, ambitious thieves held up a supermarket to steal a delivery.

But why toilet paper? The question has been in the air for at least the past month, but it’s now become hard to avoid. We asked four experts for their thoughts.




Read more:
Stocking up to prepare for a crisis isn’t ‘panic buying’. It’s actually a pretty rational choice



Niki Edwards, School of Public Health and Social Work, Queensland University of Technology:

Toilet paper symbolises control. We use it to “tidy up” and “clean up”. It deals with a bodily function that is somewhat taboo.

When people hear about the coronavirus, they are afraid of losing control. And toilet paper feels like a way to maintain control over hygiene and cleanliness.

People don’t seem interested in substitutes. Supermarket shelves are still full of other paper towels and tissues.

The media has a lot to answer for in regards to messages around this virus and messages to the public. While honesty about threats is critical, building hysteria and promoting inappropriate behaviours is far from ideal.


Brian Cook, Community Engagement for Disaster Risk Reduction project, University of Melbourne:

It’s an interesting question. My suspicion is that it is to do with how people react to stress: they want an element of comfort and security. For many Westerners there is a “yuck factor” associated with non-toilet paper cleaning.

I expect there is also a pragmatic element. Toilet paper is a product that takes a lot of space, and is therefore not something people have a lot of under normal circumstances.

A lot of people likely also use toilet paper as a tissue, and therefore imagine themselves needing a lot if they have the flu or a flu-like illness.

Stocking up on toilet paper is also a relatively cheap action, and people like to think that they are “doing something” when they feel at risk.




Read more:
High-tech shortages loom as coronavirus shutdowns hit manufacturers



David Savage, Newcastle Business School, University of Newcastle:

I think it is the perfect product. It is completely non-perishable and one of the few products that you can stock up on that you are guaranteed to use eventually.

I don’t know for certain but I suspect that most people only buy toilet paper when they just about run out, which could be a problem if you need to stay isolated for two weeks.

So I think this is just a preparation process, because we have seen that toilet paper has become a shortage item elsewhere.


Alex Russell, School of Health, Medical and Applied Sciences, Central Queensland University:

There are a few factors at play here. People aren’t only stockpiling toilet paper. All sorts of items are sold out, like face masks and hand sanitiser. Things like canned goods and other non-perishable foods are also selling well.

People are scared, and they’re bunkering down. They’re buying what they need and one of the items is toilet paper.

I think we’re noticing the toilet paper more than the other things because toilet paper packs are big items that take up a lot of shelf space. Seeing a small product sold out at the supermarket (such as hand sanitiser) is not that unusual, and it’s only a small hole in the shelf that is often temporarily filled with nearby products.

But if the toilet paper is gone, that’s a massive amount of shelf space that can’t readily be replaced with other things nearby.

A second reason we might be noticing it more is because there aren’t easy substitutions. If the supermarket is out of a particular ingredient for dinner, you can just get something else, or an entirely different dinner.

But if there’s not a roll of toilet paper, then that’s pretty frustrating for everyone. Sure, tissues or paper towels, but it’s not quite the same, is it?The Conversation

Michael Lucy, Deputy Science + Technology Editor, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.