Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 17: Price Discrimination and Price Differentiation Within Direct Mail
* Felipe Flórez Duncan†, Dawn Longman‡, Leonardo Mautino§ and Paul Dudley¶ 1 INTRODUCTION Mail operators are experiencing increasing competitive pressure across their single-piece and bulk mail services. While part of the decline in volumes is a consequence of the recent economic downturn, it is also due to more structural trends, primarily stemming from changes in demand and supply of digital communications resulting in the electronic substitution of mail. Indeed, the rapid growth in Internet advertising expenditure in recent years has been shown to have had a significant negative impact on bulk mail, including advertising or direct mail (DM) volumes (Soteri et al., 2009). In addition to increased electronic substitution, incumbent postal universal service providers (USPs) in Europe face competition with forthcoming full market liberalization. Declining volumes worsen the financial position of USPs because of the negative impact on economies of scale, particularly in their downstream networks. In response to declining volumes, USPs might need to find innovative ways of pricing new and existing products in order to encourage the use of postal services – including price discrimination between mail applications and/or customer groups, as well as short-term discounts and promotions. Such pricing might be in the public interest where it improves the ability of the USP to maintain financial stability in the provision of the universal service – when the obligation to provide that service is upon the member state (in Europe) and fulfilled by the USP. This, in turn, should lead to regulation that enables greater pricing flexibility for USPs (Crew...
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