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Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach

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  • Bakhtieva, Dilyara
  • Kiljański, Kamil
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    Abstract

    In network industries, a Universal Service Obligation (USO) is often seen as a burden on an incumbent, which requires compensation for the net cost of such service provision. This paper estimates the effects of consumer loyalty as an intangible benefit of USO in the postal sector. In doing so, the agent-based modelling (ABM) approach is applied, which makes it possible to model the behaviour of boundedly rational consumers and is thus particularly appropriate for taking into account intangibles considerations. The analysis shows that loyalty is crucial to whether the USO uniform pricing constraint results in loss-making or profitability. Under certain conditions and in the presence of a loyalty parameter, uniform pricing gives a USO provider an advantage, when the size of the rural area is sufficiently big and a disadvantage, if its size is too small. This finding is counterintuitive as USO providers in countries with sparsely populated areas are typically expected to incur a significant net cost of USO.

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    File URL: http://mpra.ub.uni-muenchen.de/48549/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48549.

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    Date of creation: 2012
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    Publication status: Published in Yearbook of Antitrust and Regulatory Studies 2012.5(7)(2012): pp. 125-141
    Handle: RePEc:pra:mprapa:48549

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    Related research

    Keywords: agent-based modelling; liberalisation of the postal markets; postal sector; Universal Service Obligation (USO); USO provider;

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    1. Christian Jaag & Martin Koller & Urs Trinkner, 2008. "Calculating the Cost of the Universal Service Obligation: The Need for a Global Approach," Working Papers, Swiss Economics 0010, Swiss Economics, revised Jul 2008.
    2. Calzada, Joan, 2009. "Universal service obligations in the postal sector: The relationship between quality and coverage," Information Economics and Policy, Elsevier, Elsevier, vol. 21(1), pages 10-20, February.
    3. De Donder Philippe & Cremer Helmuth & Dudley Paul & Rodriguez Frank, 2011. "Welfare and Pricing of Mail in a Communications Market," Review of Network Economics, De Gruyter, De Gruyter, vol. 10(3), pages 1-24, September.
    4. Christian Jaag & Urs Trinkner, 2011. "The interaction between universal service costing and financing in the postal sector: a calibrated approach," Journal of Regulatory Economics, Springer, Springer, vol. 39(1), pages 89-110, February.
    5. Fratini Alessandra, 2011. "The Universal Postal Service after the Lisbon Treaty: a True Step Forward?," Review of Network Economics, De Gruyter, De Gruyter, vol. 10(3), pages 1-18, September.
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