People would buy and sell products at completely random prices regardless of the availability of any given product. Because that’s what irrational people do…
I take your point to the extent that we need some rationality for the system to make sense. But I’m not convinced every panic-buyer is acting as irrationally as you claim. I gave the example of buying a heap of a product myself, where I would not have done so if it was more expensive. I’m not the only person in that category, and I’m not convinced that the average buyer is completely insensitive to price. I came across long life milk that was ON SALE, and bought the whole lot (I actually always do this in the event of a sale, pandemic or not). All of these decisions would have been changed by increased prices.
Has anyone contracted Corona Virus through a municipal water supply system? So why are people hoarding water? Why are people buying hundreds of rolls of toilet paper? Why are people buying up windshield wiper blades? Why are people stocking up on socks?
Because they’re preparing to stay home throughout the peak of the virus (no idea on the windshield wiper blade one). For water, it is a possibility that if you have a plumbing issue at home it’ll take longer to get a plumber around in the time of a crisis, and even if that weren’t true, perhaps they don’t want a potentially infected plumber coming to their house. Paranoid, but I wouldn’t call it irrational.
People doing so are acting irrationally creating a perception of scarcity and that, in turn. is causing other consumers to act irrationally.
Not true. Panic buying has the exact same anatomy as a bank run, and speaking on bank runs Ben Benanke said in the midst of the GFC: ‘Although, in a certain sense, a panic may be collectively irrational, it may be entirely rational at the individual level, as each market participant has a strong incentive to be among the first to the exit.’ As you say, with panic buying there is a false perception of scarcity, but even if there is supply available at some level, you might not actually get access to that supply next time to go to a supermarket. So there is rationality to it once the ball has started rolling.
To have a Nash equilibrium ALL of the players have to know the strategies of ALL of the other players
As far as I can see, the strategies available to supermarkets is to either increase prices or set per-person limits. Consumers have observed both of these things already. I’d say that satisfies the definition.
