The Operation Of Toilet Paper Is Similar To Bank Run. All Financial Improvements Are Almost The Same

The Operation Of Toilet Paper Is Similar To Bank Run. All Financial Improvements Are Almost The Same

Cars in Australia, Japan, Hong Kong and the US have caught the bathroom paper fever behind this COVID-19 coronavirus. Store shelves emptied as quickly as possible.

This fear of buying is the end result of fear of falling. This is a phenomenon of customer behavior that is very similar to what happens whenever there is a disruption in a bank.

Bank runs occur when bank depositors withdraw money because they think it can collapse. What we see today is toilet paper.

Coordination Games

Lenders only keep a portion of their savings as cash reserves. This practice is called fractional reserve banking. It releases as much residue as possible which is important for the capital adequacy needs of banking operators generating profits from the interest that costs.

If each client simultaneously decides to withdraw all their deposits, the creditor will collapse under the obligation.

The response came from Nobel laureate economist John Nash (played by Russell Crowe in the film A Gorgeous Mind in 2001).

Both the banking and the toilet paper market can be considered a coordination game. There are only two players you and the other. There are two approaches fear of buying or behaving normally. Each strategy has related results.

If everyone acts normally, we have balance there will be toilet paper on store shelves, and people can relax and buy it as they wish.

However, if others are afraid of buying, the best strategy for you is to do the exact same thing, otherwise you will be left without toilet paper. Everyone faces the exact same approach and rewards, so others will be afraid to buy if you do.

The result is another balance which everyone must buy panic.

Prevents Coordination Failure

So there is no fear of buying (coordination is developing) or everyone (coordination failure).

Anxiety about all those who are afraid of buying has made some people today afraid of buying too. But those who panic about buying do not behave irrationally. They are not stupid! They implemented an optimal strategy because panic actually had a basis some people had experienced visiting supermarkets and finding empty shelves.

However, clearly, only one of these balances is desirable. What do we do to avoid coordination failure.

One alternative is that the market mechanism allows the cost of toilet paper to grow to reduce demand. But this is not possible, given the possible reaction related to price gouging.

The first is for the authorities to measure as a guarantor.

In 2008, for example, the industrial collapse caused by the subprime mortgage disaster left many Australian banks affected by depositors. Savers, guaranteed the government will bear their losses if their banks fall, there is no longer the anxiety of being caught by not thinking about their savings.

However, all things considered from logistics to prices which might not be a good idea. The next alternative is to ration the product placing limits on how the client can buy. Although not perfect, this purchase limitation is feasible, as indicated by the constraints set by Australian supermarkets.