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Progress in the Competitive Agenda in the Postal and Delivery Sector

Progress in the Competitive Agenda in the Postal and Delivery Sector

Advances in Regulatory Economics series

Edited by Michael A. Crew and Paul R. Kleindorfer

Regulation continues to be an important issue in the postal and delivery sector of the global economy. This latest volume of the series covers progress made in the competitive agenda in the industry. It is global in scope and addresses topics of great importance to scholars and practitioners of postal regulation and public sector economics.

Chapter 6: Postal Costing Beyond ABC: Estimating the Economic Cost of Mail Services

Richard Robinson and Jane McMurdie

Subjects: economics and finance, public sector economics


6. Postal costing beyond ABC: estimating the economic cost of mails services* Richard Robinson and Jane McMurdie INTRODUCTION 1 The postal market in the UK is undergoing a significant change. As in other countries the historical link between economic variables (such as Gross Domestic Product) and mail volumes appears to have been broken with electronic substitution, ‘green’ issues and the proliferation of alternative communications media all playing a part. At the same time the mails market in the UK has been fully liberalized since January 2006 and there has been a continuing requirement upon Royal Mail as universal service provider to provide universal service of significant scope and high quality. In these circumstances, Royal Mail faces a difficult financial position and must ensure that it can compete on price and service where it needs to while charging a fair (and affordable) price for the universal service products. To be competitive, prices must be cost reflective so future pricing must include the unwinding of historical cross-subsidies between products serving different types of customer. A fundamental requirement is therefore for an approach to product costing that can determine the true economic costs of providing specific products (or groups of products). This chapter describes how Royal Mail has developed an approach to product costing that goes beyond the traditional activity-based costing (ABC) approach but which can nevertheless be implemented within the structure of the existing ABC system. This extends the work originally described in Robinson et...

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