Supply and demand working in the potato chip market……but is the mechanism efficient?

Four typhoons in Hokkaido last year have caused a supply shock in the potato market (output down by 80%). Correctly, prices have gone up. In one supermarket, a bag of four potatoes rose to ¥180  from ¥100 or ¥120. Since potatoes are, of course, a major input into the potato chip industry, there has been a significant leftwards shift in the market supply curve there too.

As prices have risen for potato chips, the rationing function of reducing the quantity demanded of potato chips (a movement leftwards along the demand curve) should be working.

But, some consumers have started “panic buying”. As an example of one consumer…….

potato chip shortage

And so, the rightward shifts in the demand curve (entirely due to panic or speculative demand) make prices rise even more.

These are inflated prices of chips on an online shopping site, Mercari. Do these prices really reflect the marginal benefit of potato chips (maybe for Sophia Iwao……)? Or are consumers behaving irrationally?

So shouldn’t the absurdly high prices lead to an increase in supply……perhaps from imports? But Japan’s protectionist agricultural policy means that it is often difficult to  import quickly and efficiently when domestic output is insufficient. Last year’s butter shortages also reflect these problems. Indeed, dairy products were one of the sectors that  Shinzo Abe promised to protect during trade talks on the Trans-Pacific Partnership pact. And potato imports have been very restricted. For 56 years they were totally banned. In 2006, the ban was lifted, but they can still only be imported for certain purposes and the distribution channels are not well-developed.

(Note: I got a lot of information for the above and the pictures from twitter from two articles:  http://econlife.com/2017/04/japans-potato-chip-shortage/    and https://qz.com/956417/stock-up-on-your-favorite-japanese-potato-chips-while-you-still-can/

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