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

Author

Listed:
  • Bakhtieva, Dilyara
  • Kiljański, Kamil

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.

Suggested Citation

  • Bakhtieva, Dilyara & Kiljański, Kamil, 2012. "Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach," MPRA Paper 48549, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:48549
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    File URL: https://mpra.ub.uni-muenchen.de/48549/1/MPRA_paper_48549.pdf
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    References listed on IDEAS

    as
    1. Christian Jaag & Martin Koller & Urs Trinkner, 2009. "Calculating the Cost of the Universal Service Obligation: The Need for a Global Approach," Chapters,in: Progress in the Competitive Agenda in the Postal and Delivery Sector, chapter 8 Edward Elgar Publishing.
    2. 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, vol. 10(3), pages 1-24, September.
    3. 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, vol. 39(1), pages 89-110, February.
    4. Fratini Alessandra, 2011. "The Universal Postal Service after the Lisbon Treaty: a True Step Forward?," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-18, September.
    5. Calzada, Joan, 2009. "Universal service obligations in the postal sector: The relationship between quality and coverage," Information Economics and Policy, Elsevier, vol. 21(1), pages 10-20, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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