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Optimal pricing of postal services under endogenously determined entry

Author

Listed:
  • Kevin M. Currier

    (Oklahoma State University)

Abstract

Postal reform (liberalization) is occurring rapidly around the world, perhaps most notably in the EU where January 1, 2011 was the date of Full Market Opening (FMO). As a strategy for maintaining the Universal Service Obligation (USO) under FMO, several authors suggest that the sale of access to competitive entrants may provide the universal service provider with significant opportunities to enhance revenues. In a single postal product context, Crew and Kleindorfer (2011) provide conditions under which competitive entry via access is welfare superior to entry via bypass (the Theorem on the Superiority of Access). In this paper, we show that in the single product context, the Laspeyres price cap-based regulatory adjustment process of Vogelsang and Finsinger (1979) may be adapted to determine optimal access-inducing prices, thereby fulfilling the USO efficiently. We also discuss a number of potential problems associated with extending the Theorem on the Superiority of Access and the Vogelsang-Finsinger price capping procedure to a multiproduct context.

Suggested Citation

  • Kevin M. Currier, 2012. "Optimal pricing of postal services under endogenously determined entry," Economics Bulletin, AccessEcon, vol. 32(4), pages 3503-3511.
    • Handle: RePEc:ebl:ecbull:eb-12-00045
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P337.pdf
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    References listed on IDEAS

    as
    1. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.
    2. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-147, June.
    3. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, vol. 38(3), pages 227-257, December.
    4. Michael A. Crew & Paul R. Kleindorfer, 2006. "The Welfare Effects of Entry and Strategies for Maintaining the USO in the Postal Sector," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Progress toward Liberalization of the Postal and Delivery Sector, chapter 0, pages 3-22, Springer.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Postal liberalization; access; bypass; universal service obligation; price cap;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L8 - Industrial Organization - - Industry Studies: Services

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