Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 5: Forecasting Letter Volumes: Augmenting Econometric Baseline Projections
1 Vance L. Martin†, Chris Paterson‡ and Jessie Xiaokang Wang§ 06 07 08 1 INTRODUCTION In recent times postal authorities around the world have had to contend with two major elements of uncertainty, each of which have created substantial difficulties in understanding and forecasting letter volumes. The first stems from the threats inherently residing within the postal industry itself that give rise to an increasingly dynamic landscape. These threats include those presented by substitution, rationalization, consolidation and competition. A second area of uncertainty has arisen from the fact that domestic economies operating within a more integrated world economy are becoming increasingly susceptible to contagion effects as substantial shocks in one country are being transmitted to other economic systems with greater effect than ever before. These shocks then impact upon domestic postal industries via a number of channels. Income effects suppressing domestic demand act to reduce the number of transactions and hence soften bill payment and presentment mail growth. Additionally, as company profits begin to fall so too does the availability for discretionary spending to stimulate promotional mailings. Certainly, in a climate where business confidence is low, advertisers will also be conscious of diminishing response rates to a direct mail campaign. Confounding the problem for the postal industry further is an acknowledgement that these twin dangers are not mutually exclusive. As the level of economic activity begins to decline as a result of the transmission of external shocks and the economic climate begins to deteriorate, behavioral shifts surrounding senders tend to...
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