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Efficient Entry, Monopoly, and the Universal Service Obligation in Postal Service

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  • Crew, Michael A
  • Kleindorfer, Paul R

Abstract

This paper analyzes the nature of and justification for the Universal Service Obligation (USO) and its relationship to the Reserved Area for Postal Service. This is motivated by problems of funding the USO in the face of increasing competition in the postal sector. After reviewing various approaches to defining and funding the USO, we develop a model to consider the optimal scope of both the Reserved Area and the USO. The model assumes an incumbent postal provider and potential entrants. The incumbent is guaranteed a monopoly franchise for services in its Reserved Area R and offers services in a possibly larger set of services U at uniform prices. All services not in R face competition from entrants. We characterize the welfare-optimal scope of R and U subject to a breakeven constraint for the incumbent. Implications for USO policy are discussed in light of the results of the analysis. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Crew, Michael A & Kleindorfer, Paul R, 1998. "Efficient Entry, Monopoly, and the Universal Service Obligation in Postal Service," Journal of Regulatory Economics, Springer, vol. 14(2), pages 103-125, September.
    • Handle: RePEc:kap:regeco:v:14:y:1998:i:2:p:103-25
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    Citations

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    Cited by:

    1. Frédéric Fustier & Lionel Janin & Racha Sahly, 2014. "Net cost calculation: a practical example concerning La Poste and its territorial presence obligation," Chapters, in: Michael A. Crew & Timothy J. J. Brennan (ed.), The Role of the Postal and Delivery Sector in a Digital Age, chapter 16, pages 214-226, Edward Elgar Publishing.
    2. Gautier Axel & Paolini Dimitri, 2011. "Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-30, September.
    3. Lindhjem Henrik & Pedersen Simen, 2012. "Should Publicly Funded Postal Services be Reduced? A Cost-Benefit Analysis of the Universal Service Obligation in Norway," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-33, June.
    4. Poudou, Jean-Christophe & Roland, Michel, 2017. "Equity justifications for universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 63-95.
    5. Poudou, Jean-Christophe & Roland, Michel, 2014. "Efficiency of uniform pricing in universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 141-152.
    6. Rodriguez, Frank & Storer, David, 2000. "Alternative approaches to estimating the cost of the USO in posts," Information Economics and Policy, Elsevier, vol. 12(3), pages 285-299, September.
    7. Anthony E. Boardman & Aidan R. Vining, 2012. "A Review and Assessment of Privatization in Canada," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 5(4), January.
    8. Helmuth Cremer & Philippe De Donder & François Boldron & Bernard Roy, 2008. "Social Costs and Benefits of the Universal Service Obligation in the Postal Market," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Competition and Regulation in the Postal and Delivery Sector, chapter 2, Edward Elgar Publishing.
    9. Jaag Christian, 2011. "Entry Deterrence and the Calculation of the Net Cost of Universal Service Obligations," Review of Network Economics, De Gruyter, vol. 10(1), pages 1-19, March.
    10. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    11. Mats Kröger, 2024. "Cream-skimming through PPAs – Interactions between Private and Public Long-term Contracts for Renewable Energy," Discussion Papers of DIW Berlin 2092, DIW Berlin, German Institute for Economic Research.
    12. Christian Jaag & Urs Trinkner, 2011. "The future of the USO - Economic rationale for universal services and implications for a future-oriented USO," Working Papers 0026, Swiss Economics.
    13. Christian Jaag & Urs Trinkner, 2012. "Defining and financing an intermodal USO," Working Papers 0035, Swiss Economics.
    14. Damien Broussolle, 2007. "Full Market Opening In The Postal Services Facing The Social And Territorial Cohesion Goal In France," Working Papers of LaRGE Research Center 2007-07, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    15. Jaag Christian, 2011. "What is an Unfair Burden? Compensating the Net Cost of Universal Service Provision," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-32, September.
    16. Raúl Bajo‐Buenestado, 2023. "Efficient regulated entry in competitive markets with demand uncertainty," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(2), pages 413-422, June.
    17. Bakhtieva, Dilyara & Kiljański, Kamil, 2012. "Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach," MPRA Paper 48549, University Library of Munich, Germany.
    18. Calzada, Joan, 2009. "Universal service obligations in the postal sector: The relationship between quality and coverage," Information Economics and Policy, Elsevier, vol. 21(1), pages 10-20, February.

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