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The Impact of the USO on the Profitability of Postal Service Provision in Finland

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  • Koski, Heli

Abstract

This study aims at investigating the order of magnitude of financial burden of the universal service obligation for the universal service provider. Prior studies have adopted various different cost accounting methods to assess the order of magnitude of net costs arising from postal universal service provision. This study, instead, uses econometric approach for predicting hypothetical profits that the universal service provider had earned without the universal service obligation, and then calculates the net losses for the firm. The econometric model takes into account the impact of cost efficiency on a firm’s profits and further the universal service provider’s entitlement to reasonable profits on postal markets. The data from the firms active in the postal and courier activities sector in Finland during the years 2005-2012 indicate that the profitability of universal service provider was clearly lower than that of competitors during the sample time period. The annual loss due to the universal service obligation was about 5 – 8 percent of the turnover of the universal service provider.

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Bibliographic Info

Paper provided by The Research Institute of the Finnish Economy in its series ETLA Working Papers with number 22.

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Length: 20 pages
Date of creation: 20 Dec 2013
Date of revision:
Handle: RePEc:rif:wpaper:22

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Keywords: universal service obligation; profitability; net cost; postal services;

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  1. Chiara Peroni & Ivete Ferreira, 2012. "Competition and Innovation in Luxembourg," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 93-117, March.
  2. Marshall, William J & Yawitz, Jess B & Greenberg, Edward, 1981. "Optimal Regulation under Uncertainty," Journal of Finance, American Finance Association, vol. 36(4), pages 909-21, September.
  3. Lindhjem Henrik & Pedersen Simen, 2012. "Should Publicly Funded Postal Services be Reduced? A Cost-Benefit Analysis of the Universal Service Obligation in Norway," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-33, June.
  4. João Amador & Ana Cristina Soares, 2012. "Competition in the Portuguese Economy: Insights from a profit elasticity approach," Working Papers w201217, Banco de Portugal, Economics and Research Department.
  5. Jaag Christian, 2011. "What is an Unfair Burden? Compensating the Net Cost of Universal Service Provision," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-32, September.
  6. Harold Creusen & Bert Minne & Henry van der Wiel, 2006. "Competition in the Netherlands; an analysis of the period 1993-2001," CPB Document 136, CPB Netherlands Bureau for Economic Policy Analysis.
  7. J. A. Bikker & M. van Leuvensteijn, 2008. "Competition and efficiency in the Dutch life insurance industry," Applied Economics, Taylor & Francis Journals, vol. 40(16), pages 2063-2084.
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