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The Impact of Increasing Competition for Non-Contract Parcels on Postal Prices and Efficiency Decisions

In: New Business and Regulatory Strategies in the Postal Sector

Author

Listed:
  • Philippe De Donder

    (Toulouse School of Economics, University of Toulouse, and Université du Québec à Montréal)

  • Frank Rodriguez

    (Oxera Consulting LLP)

  • Soterios Soteri

    (Royal Mail Group)

Abstract

The increase in e-commerce and demand for parcels has provided universal postal operators (USPs) with an opportunity to counter-balance, to some extent, declining letter volumes. However, as parcel markets have expanded this has exposed some USPs to increasing competition in the single-piece parcel traffic segment in which historically they have tended to dominate. This chapter develops and calibrates a theoretical model to assess postal USPs’ finances resulting from the trade-offs they face between efficiency gains and pricing, when operating in such an environment within a regulatory framework. Our results indicate that increasing competition in the parcel market can create added uncertainty and may require higher letter price caps to allow the USP to break even. Sensitivity analysis shows that external shocks can have a substantial impact on the USP’s financial position and fixed pre-determined price caps can impose a significant constraint on the USP’s ability to achieve a normal rate of return.

Suggested Citation

  • Philippe De Donder & Frank Rodriguez & Soterios Soteri, 2018. "The Impact of Increasing Competition for Non-Contract Parcels on Postal Prices and Efficiency Decisions," Topics in Regulatory Economics and Policy, in: Pier Luigi Parcu & Timothy J. Brennan & Victor Glass (ed.), New Business and Regulatory Strategies in the Postal Sector, pages 175-189, Springer.
    • Handle: RePEc:spr:topchp:978-3-030-02937-1_14
    DOI: 10.1007/978-3-030-02937-1_14
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    References listed on IDEAS

    as
    1. Philippe Donder & Frank Rodriguez & Soterios Soteri, 2018. "Pricing and Efficiency Decisions for Letter and Parcel Markets When Industrial Relations Matter," Topics in Regulatory Economics and Policy, in: Pier Luigi Parcu & Timothy Brennan & Victor Glass (ed.), The Contribution of the Postal and Delivery Sector, pages 241-255, Springer.
    2. Michael Crew & Timothy J. Brennan (ed.), 2016. "The Future of the Postal Sector in a Digital World," Topics in Regulatory Economics and Policy, Springer, number 978-3-319-24454-9, June.
    3. Pier Luigi Parcu & Timothy Brennan & Victor Glass (ed.), 2018. "The Contribution of the Postal and Delivery Sector," Topics in Regulatory Economics and Policy, Springer, number 978-3-319-70672-6, June.
    4. Timothy J. Brennan & Michael A. Crew, 2016. "Price Cap Regulation and Declining Demand," Topics in Regulatory Economics and Policy, in: Michael Crew & Timothy J. Brennan (ed.), The Future of the Postal Sector in a Digital World, pages 1-17, Springer.
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