Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach
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.
|Date of creation:||2012|
|Publication status:||Published in Yearbook of Antitrust and Regulatory Studies 2012.5(7)(2012): pp. 125-141|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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- 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.
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