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The “Real” Graveyard Spiral

In: Progress toward Liberalization of the Postal and Delivery Sector

Author

Listed:
  • Per Jonsson

    (Swedish Post and Telecom Agency)

  • Sten Selander

    (Swedish Post and Telecom Agency)

Abstract

This paper contributes to the debate about the possible effects on postal markets of the introduction of competition. Crew and Kleindorfer’s (2005) theory of the incumbent’s graveyard spiral argues that liberalization of the postal market can put the universal service provider in a devastating financial spiral of increasing prices and continuing losses. The graveyard spiral is described as a dynamic process triggered by entrants’ capture of the incumbent’s most profitable business, as they will price below the incumbent in low-cost markets. The loss of profitable business forces the incumbent to raise prices for its remaining business activities, making previously unprofitable volumes profitable for entrants, who then capture more volume by pricing below the incumbent. Under appropriate conditions, the incumbent is put in a downward spiral of lost volume and continued financial losses, which, without direct subsidies, can eventually force the incumbent to end its services to a range of predominantly rural areas.

Suggested Citation

  • Per Jonsson & Sten Selander, 2006. "The “Real” Graveyard Spiral," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Progress toward Liberalization of the Postal and Delivery Sector, chapter 0, pages 359-366, Springer.
    • Handle: RePEc:spr:topchp:978-0-387-29744-6_21
    DOI: 10.1007/978-0-387-29744-6_21
    as

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