Progress in the Competitive Agenda in the Postal and Delivery Sector
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Progress in the Competitive Agenda in the Postal and Delivery Sector

Edited by Michael A. Crew and Paul R. Kleindorfer

Regulation continues to be an important issue in the postal and delivery sector of the global economy. This latest volume of the series covers progress made in the competitive agenda in the industry. It is global in scope and addresses topics of great importance to scholars and practitioners of postal regulation and public sector economics.
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Chapter 12: Network Externalities and the USO: A Two-sided Market Approach

François Boldron, Helmuth Cremer, Philippe De Donder, Bernard Roy and Denis Joram


François Boldron, Helmuth Cremer, Philippe De Donder, Denis Joram and Bernard Roy 1 INTRODUCTION Externalities and particularly network externalities are among the most prominent arguments used to justify a Universal Service Obligation (USO) in the postal sector. This is an important issue for the future of the postal sector. The very idea of universal service has remained relatively uncontested during the early stages of the liberalization process. More recently, however, the USO in itself has increasingly been questioned. The question is whether the social benefits associated with the USO are significant enough to justify its cost and in particular the impediment to competition it often implies. In a recent paper, Cremer et al. (2008) provided an overview of the benefits and costs of the USO in the postal sector. They presented and assessed alternative economic justifications of the USO. In particular, the issue of network externalities was noted, but only a sketch of the main ideas was provided. The current chapter takes up this issue and provides a more formal and thorough analysis which is inspired by recent developments in the industrial economics literature. Network externalities constitute a classical justification of the USO in telecommunications. They arise when the benefits from using a network depend on the number of individuals who are connected to the network. This traditional view relies on a symmetric view of externalities where all subscribers are potential callers and receivers. This view is probably of limited relevance for the...

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