Table of Contents

Competition and Regulation in the Postal and Delivery Sector

Competition and Regulation in the Postal and Delivery Sector

Advances in Regulatory Economics series

Edited by Michael A. Crew and Paul R. Kleindorfer

orldwide, postal and delivery economics has attracted considerable interest. Numerous questions have arisen, including the role of regulation, funding the Universal Service Obligation, postal reform in Europe, Asia and North America, the future of national postal operators, demand and pricing strategies, and the principles that should govern the introduction of competition. Collected here are responses to these questions in the form of 24 essays written by researchers, practitioners, and senior managers from throughout the world.

Chapter 10: Pricing in Competitive Two-Sided Mail Markets

Christian Jaag and Urs Trinkner

Subjects: economics and finance, public sector economics

Extract

* Christian Jaag and Urs Trinkner 1. INTRODUCTION Postal letters are a means of communication between two parties with at least one of them having a positive willingness to pay. Postal operators offer a service that exploits this willingness to pay. Interestingly, virtually all postal operators apply a pre-paid mechanism that goes back on Rowland Hill’s proposal of charging only the sender-side of the market instead of the receivers too. This involves the potential for senders to bill the postage onward to the receivers, which varies between the various classes of mail and is essentially determined by the bargaining position between the two communicating parties. Postage for advertising mail remains on the sender side, while postage in commercial relationships is usually – directly or indirectly – passed on to the receivers. For example, Swiss banks increasingly bill postage for bank statements directly to their clients (i.e., the receivers).1 The fact that mail consists of two parties communicating with each other over a choice of platforms (postal operators) makes the postal market potentially two-sided. If this two-sided market is served by only one operator (the current situation in most countries), the designated postal operator has the necessary bargaining power to choose the pricing mechanism of its choice (sender pays, receiver pays, or a mix between the two). In a second step, senders and receivers are able to reallocate postage by various means, such as billing surcharges as in the case of bank statements mentioned above. In competitive markets, two effects could...

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