Indirect subsidization of the consumer end-price through a wholesale pricing mechanism to mitigate panic buying of a storable product

Sudden events—such as pandemics or natural disasters—can trigger panic buying, which refers to the precautionary behavior of stockpiling in the face of a potential stockout and price hike. This study investigates a combined direct and indirect subsidization mechanism, in which the supplier directly subsidizes the consumer end-price and indirectly regulates the market through a price-dependent wholesale rate. We develop a non-cooperative game model and show that by specifying the wholesale-price function offered to the retailer, the supplier (often a state-owned company) is able to regulate prices, mitigate panic buying, and reduce the number of leftovers. Endogenizing the wholesale price enables comparable price stabilization with markedly lower subsidy budgets, clarifying when indirect subsidization should be preferred in practice. The best response price offered by the retailer to consumers is derived analytically. The analysis shows that minimizing the end-price is not the supplier’s optimal objective and that purely direct subsidization is financially inefficient.