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Pricing by state-owned enterprises: the case of postal services

  • R. Richard Geddes

    (Policy Analysis and Management, Cornell University, Ithaca, NY, USA)

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    Sappington and Sidak develop a model of state-owned enterprise (SOE) pricing behavior in which firms maximize a weighted average of revenues and profits. The model predicts that SOEs will lower prices in more-elastic markets and raise them in less-elastic markets if the weight they place on profit is positive. The Postal Reorganization Act of 1970 relaxed the institutional constraints on pricing by the US Postal Service, which allows a test of the Sappington-Sidak model. The model's predictions are broadly confirmed. Congress passed the Postal Accountability and Enhancement Act in 2006, which may help address some anticompetitive concerns in this industry. Copyright © 2008 John Wiley & Sons, Ltd.

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    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 29 (2008)
    Issue (Month): 7 ()
    Pages: 575-591

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    Handle: RePEc:wly:mgtdec:v:29:y:2008:i:7:p:575-591
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    1. Lott, Jr., John R., 1999. "Are Predatory Commitments Credible?," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226493558.
    2. Lott, John Jr., 1990. "Predation by public enterprises," Journal of Public Economics, Elsevier, vol. 43(2), pages 237-251, November.
    3. Brennan, Timothy J, 1990. "Cross-Subsidization and Cost Misallocation by Regulated Monopolists," Journal of Regulatory Economics, Springer, vol. 2(1), pages 37-51, March.
    4. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-77, December.
    5. repec:aei:rpbook:53134 is not listed on IDEAS
    6. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    7. David Sappington & J. Sidak, 2003. "Incentives for Anticompetitive Behavior by Public Enterprises," Review of Industrial Organization, Springer, vol. 22(3), pages 183-206, May.
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