Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 3: Does the Level of Price Elasticity Change with the Progression of Substitution?
Heikki Nikali† INTRODUCTION 1 The erosion of paper mail demand by electronic substitution is a reality in all developed countries. Almost nobody is prepared to deny this anymore. It is also evident that the substitution process has reached different stages in different countries, and a good example would be a comparison between Denmark and Finland. Denmark belongs to the first wave of consumer invoice digitization, whereas Finland is a long way behind. Two years ago only one-third of Danes said that paper letters were their main channel for receiving invoices (Kiikkilä et al., 2008). In Finland the proportion was nearly 90 percent. The corresponding figures for Denmark are 32 percent and for Finland 83 percent in 2010 (Elkelä 2010). During the 2000–09 period, addressed letter volumes decreased by 29 percent in Denmark and 9 percent in Finland. The main purpose of this chapter is to examine the case of Finland and to determine whether letter price elasticity in different sender and receiver categories varies according to the extent of electronic substitution. Although the substitution process has progressed farthest for letters sent by consumers, it has only just begun in the business-to-consumer (B2C) sector (Nikali, 2008). Consumers send messages to each other and have many channels at their disposal (letter, postcard, email, short message service (SMS), and many new Internet communication forms). However, in B2C communication senders have to be careful even when using email or SMS, and at present they cannot easily use the new Internet communication forms. For...
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