Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 16: Electronic substitution and postal price elasticities: a customer market approach
Advances in technology are blurring the boundary between the delivery of communications via physical and electronic means. There is a consensus among studies that e-substitution has impacted the development of postal markets across the world, reaching various stages in different countries and the impact on mail volumes being dependent upon the type of mail sent and/or business sector. Clearly the use of new technology impacts negatively on postal operators’ delivery volumes, with developed countries experiencing sharp falls even before the global recession of 2008–09. Although this effect is likely to prevail in the future, it is highly uncertain whether it will determine the future path of e-substitution. Postal operators are faced with the challenge to construct medium-and long-term projections in a rapidly evolving market, where e-substitution, due to structural factors, can occur even when prices do not change over a given economic cycle. Because of economies of scale in the sector, as mail volumes decline average costs increase ceteris paribus. Rising costs might be compensated by efficiency gains and increasing prices, but the latter can also promote substitution to other ways of communication. Therefore, it is important for postal operators to assess the degree to which future e-substitution could be influenced by structural factors (no price changes) and/or price changes and their impact on mail volumes to inform better their pricing and planning decisions.
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