Government Intervention and the Price of KF94 Masks in the Covid-19 Era

BACKGROUND: To control the surging prices of KF94 masks amid the Covid-19 pandemic in South Korea, the government mandated 80% of medical masks to be sold as “public masks” at a fixed price. The mask prices came down quickly, ensuring public health and suppressing the spread of the pandemic, and the sales of KF94 masks reverted to the free market system on July 12, 2020. This paper aims to evaluate the unintended consequence of public masks to mitigate any negative effects for future deployment. METHODS: The relationship between the offline and online prices of KF94 masks and the production quantity of medical masks was estimated using the data after July 12, 2020 (the “free market” period), and, given the regression results, counterfactual analyses were conducted to predict what the offline and online prices of KF94 masks would have been before July 12, 2020 (the “public masks” period) had the sales of medical masks reverted to the free market system a month earlier than July 12, 2020. RESULTS: The prolonged deployment of public masks distorted the ratio of offline and online prices of KF94 masks and kept the prices artificially high at its later stage. How much higher? The online price of privately sold KF94 masks would have been roughly thirty to forty percent lower and the offline price roughly three to four percent lower if public masks ended four weeks earlier. CONCLUSION: The government intervention achieved its intended consequence of controlling the surging prices of KF94 masks at the early days of Covid-19, but the prolonged use of public masks had the unintended consequence of distorting market outcomes. The lesson? The government intervention should be kept brief, and the free market system should return as soon as the crisis subsides.