Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 11: Postal Price Elasticities and Intermedia Competition: A Multisided Market Approach
* Vincenzo Visco Comandini, Michael Lintell, Stefano Gori, Maria Rita Pierleoni and Bradley Tisdahl 1 INTRODUCTION This chapter discusses the rationale for applying multisided market theory (MSM) to postal services by reviewing its basic concepts as deﬁned in the relevant literature (Evans, 2003; Rochet and Tirole, 2004; Armstrong, 2005). It starts by observing the strategy diﬀerentiation of European postal administrations as a consequence of full market opening (FMO) as decided by the European Union with the approval of the Third Directive in 2008. National postal providers seem to react to FMO with very diﬀerent business models, reﬂecting diverse starting-points and diﬀering visions regarding the scope of universal service. Despite the perspective of liberalization, estimates of postage price elasticities are surprisingly low. The chapter maintains that this evidence depends on the MSM structure of the postal industry. Moreover, one of its main products, Direct Mail, is characterized by a multi-homing situation. Multi-homing arises when separate MSM platforms such as postal services, TV and other media, are all used by the same buyer (the advertiser) in a single marketplace and where the media channels compete with each other for the buyer’s advertising budget. This chapter illustrates inter-media competition in the UK and in Italy, showing that in both countries Direct Mail has signiﬁcant market share for advertising. An econometric estimate based on data for the 13 main industrialized countries shows evidence that in the advertising industry Direct Mail tends to complement other media rather than substitute them....
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