The latest issue of Economist (March 14th to 20th) has a cover story entitled “The politics of pandemics”. This blog instead is about the economics of pandemics. No other stories are as good as this one about this Amazon retailer in Tennessee holding some 17,700 bottles of hand sanitizer but not able to sell them, while people all over the States, perhaps even all over the world, are searching for masks and sanitizers in vain.
Who is to be blamed? No one in particular. It seems everyone holds his or her ground by citing some good cause. Noah Colvin, the one who drove thousands of miles clearing off the shelves of dollar stores, Walmart, Staples and Home Depot for sanitizers and antibacterial wipes in the lowest price possible and then sell them at much higher prices using the Amazon accounts, argued that they were merely doing public service. His reasoning was that they brought those items from nowhere in the country with low local demand to the people who are willing to pay a much higher price, meaning they appreciate the items much more than others. Of course, the consumers willing to pay the price of up to $70 for a bottle of sanitizer did nothing wrong, as they did not want to risk their lives not to buy them. Amazon seemed to have done a good thing by cracking down the online price gouging in the face of a public healthcare crisis. It threats to shut down the accounts behind the stockpiling for insane amounts of profits.
Yet the problem is obvious and urgent: We have a market shortage and more people are looking to buy them than the supply can meet. In a sense, Mr. Colvin is just an extreme case and millions of people may just want to do the same thing as him, on a smaller scale. How do we sold the problem?
In real life, our story ended with Mr. Colvin was thinking about donating all those bottles to some charities, which is not the best or fairest way of solving the problem. After all, He and his colleagues did spend time and energy to collect those now hard to find items and they could rightfully demand for some compensation for their “investment.”
The best way is for local government to come up and buy their inventories with a price higher than the non-crisis level but lower than $70. This acknowledges the higher demand that is behind the price hike, and allows guys like Mr. Colvin to be partially compensated without hurting the public too much. Local government handling can reduce the cost of long distance hauling. For the higher demand it is best to rationalize. Costco has done that by asking each customer to buy only two packages of drinking water.