Postal Platform Pricing with Limited Consumer Attention

We introduce limited consumer attention into a two-sided market model to investigate optimal platform pricing for the postal mail sector. Two types of senders – advertisers and nonadvertisers – derive value from attention paid to their mail. Consumers pay more attention to each mail item if they receive less mail and pay more attention to advertising mail if they receive more non-advertising mail. We show that a postal monopolist subsidises non-advertising prices, which increases the value of mail to advertisers, thus inflating advertising prices. Advertisers that are most nuisance or attention-consuming for recipients face high prices. Competitive entry for delivering advertising mail cannibalises the advertising mail market and the cross-subsidisation of prices is shut down. However, if the entrant price-matches rather than competes, all postal operators, mail senders and recipients can benefit. This insight suggests that competition amongst postal operators does not necessarily benefit consumers, especially if the entrant is more efficient. Based on our findings, we argue that Universal Service Obligation policies are not as demanding as traditionally viewed.