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Reforming the Postal Sector in the Face of Electronic Competition

Reforming the Postal Sector in the Face of Electronic Competition

Advances in Regulatory Economics series

Edited by Michael A. Crew and Paul R. Kleindorfer

In our increasingly technology-focused world, demand for traditional postal services is steadily shrinking. This timely volume examines the many challenges that the worldwide postal sector is facing as a result of growing electronic competition, and offers expert recommendations for reshaping postal structures to strengthen their competitiveness in an electronic age.

Chapter 12: Dynamic letter volume models: how does an economic downturn affect substitution propensities?

Vance L. Martin, Chris J. Paterson, Heikki Nikali and Qiubang Li

Subjects: economics and finance, public sector economics


In very recent years discussions about transactional letter volumes worldwide have tended to emphasize the difficulties created by deteriorating economic conditions compounded by substantive movements towards electronic substitutes to the traditional mail item. Structural changes to the postal landscape in the realm of electronic substitution have been well documented throughout the literature (Nikali, 2008, 2011; Paterson, 2008; Martin et al., 2011 Meschi et al., 2011). However, the magnitude of Europe’s recent economic instabilities and the global financial crises that immediately predated such events have tended to draw the focus back onto providing a cyclical rationale for letter volume declines as of late. The associated lower levels of domestic demand logically reduce both transactional letter volumes and the level of discretionary spending that drives promotional activities of which letter segments such as Direct Mail are included. Instead of treating the cyclical and structural change effects as two separate components, a natural generalization is to develop general equilibrium type models linking these, and indeed other, letter volume drivers under a single unifying system. Given that different letter volume segments are exposed to different types of substitution occurring at differing speeds, it is important to recognize the impact that an adverse economic shock might have on accelerating movements towards the electronic alternatives.

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