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Optimal pricing of postal services under endogenously determined entry

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  • Kevin M. Currier

    ()
    (Oklahoma State University)

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    Abstract

    Postal reform (liberalization) is occurring rapidly around the world, perhaps most notably in the EU where January 1, 2011 was the date of Full Market Opening (FMO). As a strategy for maintaining the Universal Service Obligation (USO) under FMO, several authors suggest that the sale of access to competitive entrants may provide the universal service provider with significant opportunities to enhance revenues. In a single postal product context, Crew and Kleindorfer (2011) provide conditions under which competitive entry via access is welfare superior to entry via bypass (the Theorem on the Superiority of Access). In this paper, we show that in the single product context, the Laspeyres price cap-based regulatory adjustment process of Vogelsang and Finsinger (1979) may be adapted to determine optimal access-inducing prices, thereby fulfilling the USO efficiently. We also discuss a number of potential problems associated with extending the Theorem on the Superiority of Access and the Vogelsang-Finsinger price capping procedure to a multiproduct context.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P337.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 4 ()
    Pages: 3503-3511

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    Handle: RePEc:ebl:ecbull:eb-12-00045

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    Related research

    Keywords: Postal liberalization; access; bypass; universal service obligation; price cap;

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    1. BLOCH, Francis & GAUTIER, Axel, 2006. "Access pricing and entry in the postal sector," CORE Discussion Papers 2006065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-47, June.
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