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The COVID-19 pandemic has had adverse impacts on markets ranging from the finance sector to the retail sector – with shortage of essentials such as surgical facemasks, hand sanitisers, and perhaps more peculiarly, toilet paper.

Empty shelves in supermarkets paint a bleak and worrying picture of how panic slowly spreads in society. Panic-buying of essentials has occurred across the world, despite attempts by the government to discourage stockpiling and retailers ensuring that shelves will be replenished accordingly. In the UK, the government has allowed restrictions on delivery hours for shops to be relaxed. Environment Secretary George Eustice said that by “allowing night-time deliveries, stock would be able to move quickly from warehouse to shelves.” 

This is a classic case study of herd behaviour; defined as a phenomenon whereby individuals make decisions as a group which would not be made if they were on their own. Through a vicious cycle of speculative-based fear as global supply chains grinds to a halt, many look towards stockpiling as an act of reassurance. Ironically, perceived scarcity then becomes actual scarcity. 

Dr Dimitrios Tsivrikos, an expert in consumer and behavioural science at the University College London assess that “because toilet paper has a longer shelf-life than many food items, and is prominently featured in aisles and is big in size, we are psychologically drawn to purchasing it in times of crisis.”

This is especially true when considering how the severity of the COVID-19 outbreak does not match the precautionary actions that the government advises consumers to take. Clinical psychologist Steven Taylor, author of “The Psychology of Pandemics” remarks that “when people are told something dangerous is coming, but all you need to do is wash your hands, the action doesn’t seem proportionate to the threat.”

The impact of panic and the resulting irrationality is seen in the bank run of 1930 whereby depositors lost confidence in the security of their bank, withdrawing large sums of money in fear of “losing out on their cash.” In the case of excessive buying, the Tulipmania bubble provides a good example of this, with investors irrationally “madly purchasing tulips, pushing their prices to unprecedented highs,” with the best of tulips costing upwards of $750,000.

Although it is highly unlikely that toilet paper will ever reach such unprecedented levels, toilet rolls prices have already reached ridiculously high levels, with listings on eBay rising up to £1000. Hand sanitisers that are sold at Lidl at 49p are selling for as much as £24.99 online, a 5000% increase from its original price.

As appalling as this is, it is likely that only a minority are buying toilet rolls to sell them and this phenomenon is not expected to last for very long. The Competition and Markets Authority has told suppliers to “act responsibility, where they were monitoring pricing practises.” Retailers such as Tesco and Amazon are also playing their part, with Amazon committing to remove thousands of listings from its sites around the world that attempts to exploit price. 

Perhaps this is a simple case of excessive demand meeting a short-term inelastic supply but for now, cooler heads must prevail. In fact, we must recognise that the impact on the retail industry should be shorter. Ryan Zhou, Vice President of the Consumer Packaged Goods division of Nielsen China notes that store sourcing has improved dramatically over the years. 

“Online suppliers have reacted very, very quickly by offering store owners mobile applications for sourcing orders. Going online has really helped suppliers react and adjust their supply systems in ways that didn’t exist during SARS,” Zhou said. 

A 2-ply problem

The average individual might only be focused on the medical epidemic but Nobel-prize winning economist, Robert Shiller, remarks that “we have an epidemic of fear based around a narrative that is not necessarily keeping up with scientific reality.” 

Beyond the imminent recession, we should perhaps pivot to the long-term effects on social relationships and the current rise of fake news and xenophobia. With the first violent hate crime linked to the coronavirus outbreak, whereby two teenagers were “violently assaulted and robbed” an East Asian man, escalating tensions online have spread into everyday lives. This case is not the last of its kind, with the most recent reported case of attack made on a Singaporean at Oxford Street, that led to him needing an operation on a broken bone near his right eye.

Miri Song, Professor of Sociology at the University of Kent spoke to TIME Magazine about the rise of xenophobia across the world.

“Whenever there’s some kind of major incident with global or regional implications, and as soon as you can identify it in relation to some racial ‘other’, particularly in predominantly white, multi-ethnic societies like England or the US, I think it’s very easy for people to use a very small excuse to start scapegoating on the basis of their appearance.”

A recent poll by Ipsos MORI, a market research company in the UK, suggests that the “threat of COVID-19 could have a significant impact on the UK public’s behaviour.” In the UK, only one in ten people reported that they would take none of these actions detailed in the table below.

Pivoting to the impact of COVID-19 on the financial markets, researchers from MIT and Yale found that fake news “increases abnormal trading volume, imposing temporary price impact on small firms.” Fake news feeds into the current panic – one paper shows that “conditions that were highly conducive to create a self-fulfilling cycle of panic … was likely to lead to falling economic output and performance.” Such research is reflected in the recent soar of volatility in financial markets, with the FTSE 100 index crashing – closing on the 13th of March (Friday), it had lost 1,096 points, shedding £275bn in a week.

Such panic, although warranted at a time like this, must be tempered with factual information. The CDC notes that “everyone can help stop stigma related to COVID-19 by knowing the facts, and sharing them with others in your community.” 

Looking back at this timely article from 2009 about the H1N1 flu pandemic, the author notes that the “best response at this stage is to combine intensive surveillance and research into the new virus with clear public information campaigns.” Such public information given by authorities can only be made accessible to the public if it is not drowned out by other misleading information. Let us all do our part to assess the veracity of information on our social media feed before sharing it.