Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 6: Optimal Pricing for Mail and Welfare Implications in a Communications Market
* Philippe De Donder†, Helmuth Cremer‡, Paul Dudley§ and Frank Rodriguez¶ 1 INTRODUCTION Historically the mail market has been characterized by items sent individually or in small volumes, single-piece items, and items sent in large volumes, bulk mail items. In Europe the daily collection and delivery service of single-piece mail forms part of the Universal Service Obligation under the Third European Directive. The inference is that postal competition can develop for bulk mail where there are economies of scale and scope, particularly in upstream pipeline activities such as collection but also downstream in delivery. However, this is not the only form of competition that postal operators face. Increasingly, postal providers are facing up to changes in customer behavior towards mail, and competition from other forms of communication, particularly from digital and electronic media (Nikali, 2008; Fève et al., 2009; Crew and Kleindorfer, 2010). The growth in and accessibility of such media, at both an individual and a corporate level, raises significant challenges for the postal industry in looking for optimal pricing policies and welfare-enhancing changes. The traditional bulk mail market can be thought of as serving at least two separate functions. First, direct mailers provide information to existing or new customers to encourage a response or purchase. Second, transactional mailers provide regular information to their existing customers as part of their business relationship. While the bulk mail market might also comprise mail used for other purposes, this chapter focuses on these two segments. In a previous paper (De Donder et...
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