- Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 1: Service Quality, Price Caps and the USO Under Entry
1. Service quality, price caps and the USO under entry Michael A. Crew and Paul R. Kleindorfer* INTRODUCTION 1 The problem of quality of service in regulated industries has been the subject of an extensive and developing literature as surveyed by Sappington (2005). Service quality has also been an issue for postal operators (POs) under monopoly, with increasing attention paid in recent years to its measurement. It will become even more important under competitive entry, as it contributes to both the deﬁnition and cost of the Universal Service Obligation (USO) as well as to product and marketing strategies for business products that will be the focus of competition. Indeed, with full market opening (FMO) approved to take eﬀect in the European Union (EU) in 2011 and 2013, service quality along with maintaining the USO will take on new dimensions. For example, the quality of competitive products may be aﬀected by the quality levels determined by regulators for USO products. Similarly, the technological innovations spurred by the Internet will impact service quality and its regulation. The topic is complicated and too broad to be covered in one chapter. The focus of this chapter will be on integrating price-cap regulation with service quality in the postal sector under entry. While service quality under entry has an extensive literature for regulated industries, it is relatively new ground in the postal sector, because, until only recently, entry was not a major issue. With 2011 looming in Europe and postal reform taking...
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