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The Role of the Postal and Delivery Sector in a Digital Age

The Role of the Postal and Delivery Sector in a Digital Age

Advances in Regulatory Economics series

Edited by Michael A. Crew and Timothy J. J. Brennan

This volume, the result of the 21st Conference on Postal and Delivery Economics (Ireland, 2013), describes the continuing problem of the decline of the postal sector in the face of electronic competition and offers strategies for the survival of mail services in a digital age.

Chapter 16: Net cost calculation: a practical example concerning La Poste and its territorial presence obligation

Frédéric Fustier, Lionel Janin and Racha Sahly

Subjects: economics and finance, competition policy, public sector economics


This chapter aims at providing postal stakeholders with lessons from a practical experience of a net cost calculation closely related to, but different from, the net cost of the Universal Service Obligation (USO). Calculating a net cost is required when a designated operator, providing universal service or any service of general economic interest (SGEI), benefits from public or sectoral funds through a compensation mechanism. There is a wealth of economic literature tackling the issue of the cost of the USO, developing theoretical arguments favoring the net cost methodology (Crew and Kleindorfer, 1998; NERA, 1998; Cremer et al., 2000; Panzar, 2000). This methodology, equivalent to calculating the profitability cost (PC), has been considered as the appropriate standard that gives the right incentives to the operator in charge of the USO, and prevents competitive distortions. This framework applies in particular to the calculation of the cost of the USO, as set by the Third Postal Directive 2008/06/EC (see Toledano, 2012 for a historical perspective), but also to any net cost calculation of the compensation for SGEI (Altmark judgment).

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