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Profitability of the Universal Service Postal Provider Under Entry with Economies of Scale in Collection and Delivery

In: Progress toward Liberalization of the Postal and Delivery Sector

Author

Listed:
  • Gonzales d’Alcantara

    (University of Antwerp)

  • Bernard Amerlynck

    (EXPOST Consulting)

Abstract

We propose a model for a liberalized competitive postal market that has one Universal Service Obligation (USO) provider, the incumbent, and one entrant. In this model we take into account the existence of economies of scale in their collection and delivery activities. The study is intended to lead to conclusions about the impact of economies of scale on the postal market in various countries, as measured by mail delivery density, which is defined as the number of postal items delivered per person, per year, and according to the size of the population. We consider delivery technologies of operators in markets of different sizes, measured by both these criteria. Variable and fixed costs in the collection and delivery activities are determined by a structural cost model, which has the same form for the incumbent as for the entrant. In this latter model we will also pay attention to delivery technology parameters, which differ from country to country, such as the number of delivery points per route stop. Given a definition of the USO, assumptions about demand behavior, and the opening of the market to the entrant, the calibrated model will compute the impact of the ‘cream-skimming’ mechanism and the ‘graveyard spiral’ on volume, tariffs, market shares and the cumulative balance the entrant needs in order to finance the delivery network.

Suggested Citation

  • Gonzales d’Alcantara & Bernard Amerlynck, 2006. "Profitability of the Universal Service Postal Provider Under Entry with Economies of Scale in Collection and Delivery," 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 39-57, Springer.
  • Handle: RePEc:spr:topchp:978-0-387-29744-6_3
    DOI: 10.1007/978-0-387-29744-6_3
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