Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 12: Dynamic letter volume models: how does an economic downturn affect substitution propensities?
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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