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Liberalization of the Swiss Letter Market and the Viability of Universal Service Obligations

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  • Jaag, Christian

Abstract

We discuss the ongoing liberalization process in the market for addressed letter mail in Switzerland. The core of the paper is an assessment of the liberalization's impact on the financial viability of various universal service obligations with and without access to the incumbent's downstream delivery network for customers and competitors. We propose a simple calibrated model of the Swiss letter market offering theoretical insights into the mechanics of market opening along with quantitative conclusions bearing direct policy relevance. The extent of the entrants' market coverage and the equilibrium in the resulting price competition are endogenously determined. Our simulations suggest caution in introducing full market opening. For the scenarios considered, the model shows that either the burden of the USO must be reduced (e.g. with respect to the frequency and the coverage of delivery and / or through price differentiation). Alternatively, other means of assuring financial stability of Swiss Post must be sought, be it through external funds or demand stimulation through new producs, possibly in the worksharing domain.

Suggested Citation

  • Jaag, Christian, 2007. "Liberalization of the Swiss Letter Market and the Viability of Universal Service Obligations," MPRA Paper 6121, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6121
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    References listed on IDEAS

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    1. Mehdi Farsi & Massimo Filippini & Urs Trinkner, 2006. "Economies of Scale, Density and Scope in Swiss Post's Mail Delivery," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Liberalization of the Postal and Delivery Sector, chapter 6, pages 91-102, Edward Elgar Publishing.
    2. Gonzales d’Alcantara & Bernard Amerlynck, 2006. "Profitability of the Universal Service Postal Provider Under Entry with Economies of Scale in Collection and Delivery," 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 39-57, Springer.
    3. Christian Jaag & Urs Trinkner, 2008. "Pricing in Competitive Two-Sided Mail Markets," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Competition and Regulation in the Postal and Delivery Sector, chapter 10, Edward Elgar Publishing.
    4. Beat Friedli & Christian Jaag & Daniel Krähenbühl & Ole Bach Nielsen & Søren-Michael Pihl & Urs Trinkner, 2006. "Consumer Preferences and Last Mile Pricing in the Postal Sector," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Liberalization of the Postal and Delivery Sector, chapter 21, pages 343-356, Edward Elgar Publishing.
    5. Helmut M. Dietl & Urs Trinkner & Reto Bleisch, 2005. "Liberalization and Regulation of the Swiss Letter Market," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Regulatory and Economic Challenges in the Postal and Delivery Sector, chapter 0, pages 53-72, Springer.
    6. Edward S. Pearsall, 2005. "The Effects of Worksharing and Other Product Innovations on U. S. Postal Volumes and Revenues," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Regulatory and Economic Challenges in the Postal and Delivery Sector, chapter 0, pages 213-241, Springer.
    7. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-190, March.
    8. Cátia Felisberto & Matthias Finger & Beat Friedli & Daniel Krähenbühl & Urs Trinkner, 2006. "Pricing the Last Mile 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 249-264, Springer.
    9. Urs Trinkner & Martin Grossmann, 2006. "Forecasting Swiss Mail Demand," 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 267-280, Springer.
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    Cited by:

    1. Martin Maegli & Christian Jaag & Matthias Finger, 2009. "Co?ts de la r?gulation des industries de r?seau: enseignements du r?seau postal," Working Papers 0015, Swiss Economics.
    2. 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.
    3. Martin Buser & Christian Jaag & Urs Trinkner, 2008. "Economics of Post Office Networks: Strategic Issues and the Impact on Mail Demand," Chapters, in: Michael A. Crew & Paul R. Kleindofer & James I. Campbell Jr (ed.), Handbook of Worldwide Postal Reform, chapter 5, Edward Elgar Publishing.
    4. M. Maegli & C. Jaag & M. Finger, 2010. "Regulatory Governance Costs in Network Industries: Observations in Postal Regulation," Competition and Regulation in Network Industries, Intersentia, vol. 11(2), pages 207-238, June.
    5. Christian Jaag & Martin Koller & Urs Trinkner, 2009. "Calculating the Cost of the Universal Service Obligation: The Need for a Global Approach," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Progress in the Competitive Agenda in the Postal and Delivery Sector, chapter 8, Edward Elgar Publishing.
    6. Dietl Helmut M & Jaag Christian & Lang Markus & Trinkner Urs W.O., 2011. "Competition and Welfare Effects of VAT Exemptions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, April.
    7. Christian Jaag & Helmut Dietl & Urs Trinkner & Oliver Furst, 2012. "Defending Mail Markets Against New Entrants: An Application of the Defender Model," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Multi-Modal Competition and the Future of Mail, chapter 17, Edward Elgar Publishing.
    8. Jaag, Christian, 2014. "Postal-sector policy: From monopoly to regulated competition and beyond," Utilities Policy, Elsevier, vol. 31(C), pages 266-277.
    9. Christian Jaag & Urs Trinkner, 2008. "Pricing in Competitive Two-Sided Mail Markets," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Competition and Regulation in the Postal and Delivery Sector, chapter 10, Edward Elgar Publishing.
    10. Jaag Christian, 2013. "Price Regulation and the Financing of Universal Services in Network Industries," Review of Law & Economics, De Gruyter, vol. 9(1), pages 125-150, September.
    11. Maegli, Martin & Jaag, Christian, 2009. "Regulatory Governance Costs in Network Industries: Implicatins for postal Regulation," MPRA Paper 15309, University Library of Munich, Germany.
    12. Helmut M. Dietl & Urs Trinkner, 2008. "Developing Universal Postal Services in Latin America ? an Economic Perspective," Working Papers 0012, Swiss Economics, revised Nov 2008.
    13. Alfred Hugentobler & Christian Jaag, 2014. "Switzerland: The Role of Swiss Post in Indirect Press Subsidies," Working Papers 0044, Swiss Economics.

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    More about this item

    Keywords

    Liberalization; Mail; Universal Service Obligation;
    All these keywords.

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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