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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 16: Electronic substitution and postal price elasticities: a customer market approach

Leticia Veruete-McKay, Robert Sheldon, Peter Burge and Alison Lawrence

Subjects: economics and finance, public sector economics


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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