The Economics of the Postal and Delivery Sector

Adopting a comparative perspective, this article examines whether, in light of the ongoing changes in the postal markets, incumbent postal operators are likely to keep dominating the industry, and whether new entrants’ strategies are more likely to succeed nationally or in niche segments. It will also contribute to the lively debate as to whether access – negotiated or regulated – to the incumbent’s postal network is a more sustainable outcome with respect to end-to-end competition.

One of the policies that competition authorities in the UK and Europe have implemented to combat cartels is leniency for the first company to whistle blow on the arrangement. We set out the game theory that has informed the policy and discuss the assumptions underlying the theory and how changing these assumptions could affect outcomes. We will examine cartel cases in the postal industry that have been brought to light using leniency programs such as these. Leniency programs usually grant immunity to the first party to whistle blow on the cartel. One recent case of this kind involved a cartel between Royal Mail’s Parcelforce division and parcel operator SalesGroup. Royal Mail admitted its involvement to the Competition Markets Authority and escaped a fine, whilst SalesGroup were fined for their involvement. Through discussing the game theory of these leniency policies, we will consider the rationality and risk preferences of the parties involved, and how this might affect potential outcomes of this policy. We will discuss the gains and losses to each party involved in a cartel; the potential gains for the party who decides to whistle-blow, and the risk of not blowing the whistle for other parties.

The appropriate role of the As Efficient Competitor Test (AECT) in assessing alleged pricing abuses has been debated amongst competition policy economists and lawyers for years. This is especially so for pricing conduct that does not involve predation. This paper considers this in the context of a recent case – the Royal Mail case.

The economic and societal roles of digital platforms are a hotly debated topic. They have been under close scrutiny by European competition authorities for a while and their US counterparts have now followed suit. The subject is also receiving increasing attention in the media and in political circles. Each platform raises specific questions, but the general themes are market power, the collection and (mis)use of personal data and related privacy issues, free speech and for some even their possible interference in the political process. Consequently, the call for regulatory or competition policy intervention has become ever more pressing. Various reforms are being considered, including extreme solutions such a dismantlement of the platform. In this chapter, we focus on the issues related to data collection in the e-commerce sector, examine its consequences on equilibrium under several market specifications and different measures that could be implemented to regulate a vertically integrated marketplace. We show that the optimal policy is either complete dismantlement or data sharing. The relative impacts on consumer surplus and total welfare of these two options involve a tradeoff between the increased competition implied by complete dismantlement and the data related delivery cost advantage achieved under data sharing. When this cost advantage is small, completely dismantling dominates, while data sharing is the best policy when the cost advantage is large. Vertical separation is never optimal. While it may or may not yield a larger welfare than the reference scenario, it is always dominated by the two other policies

This paper starts from USPS’s Negotiated Settlement Agreements (NSAs) to understand the evolution of the postal sector in the US linked to the growth of e-commerce. It goes on to explore reasons for platforms’ entry into last-mile delivery and its likely consequences. As a backdrop, the United States Postal Service (USPS) is under financial pressure. Over the period FY 2006 through FY 2016, the Commission noted that the Postal Service suffered a cumulative net loss of $59.1 billion (PRC, 2019a, p. 6). On 6 April 2018, President Trump stated on Twitter, “Only fools, or worse, are saying that our money losing Post Office makes money with Amazon,” Trump tweeted. “THEY LOSE A FORTUNE, and this will be changed.” The president’s broadside launched a full-scale news media debate that produced mainly opposing opinions (see for example, Banker, 2017 and Segarra, 2018).

The recent fall in letter demand, along with the dramatic growth in the demand for parcel delivery, has opened the question as to whether posts should rely upon an integrated network (letters and parcels delivered together) or create a system of dedicated (parcels only) routes. As a result, there is ongoing research/debate on the topic of efficient last mile delivery. This is more than an academic question. Winkenbach et al. (2016) note that posts have taken quite different paths toward achieving efficiency in delivery, with some posts retaining their traditional integrated networks (Royal Mail, Deutsche Post) and others turning to dedicated parcel delivery (PostNL, Bpost). Still others choose integrated delivery in the city, while switching to separate routes in rural areas (La Poste).

A widespread business strategy for national postal operators (NPOs) around the world is diversification into competitive sectors other than postal delivery. One concern with diversification is excessive transfer pricing, that is, overcharging itself for an input. A second is non-price discrimination against rivals in access to its regulated service (Crew et al., 2005). A third concern, cross-subsidization, involves charging cost associated with the production of an unregulated service and charging it to the ratepayers of the regulated service (Brennan, 1990). We assess whether these concerns apply to the postal sector and if there are countervailing benefits.

The research performed for this paper employed historical data to estimate the contribution to social welfare from domestic postal service in the U.S. since 1790. The goal was to discover how this contribution was determined by economic and demographic conditions, by postal pricing, by technology, by regulation and by various initiatives undertaken to alter and extend national service. The method was to fit an econometric model to time series constructed from U.S. historical statistics, and then to use the fitted model to make comparative calculations of welfare, defined as the sum of consumers’ and producers’ surpluses, under selected counter-factual scenarios.

On 23 October 2019, the Austrian data protection authority (Datenschutzbehörde, “DSB”) imposed a fine of €18 million on Österreichische Post AG (“Austria Post”) for various violations of the EU General Data Protection Regulation (“GDPR”). The DSB established that Austria Post had unlawfully processed customers’ data to extrapolate “political affinity” (i.e., presumed voting behavior), which was then sold to political parties for targeted advertising. In addition, according to the DSB, Austria Post had further processed data on package frequency and frequency of relocations for the purpose of direct marketing in the absence of a legal basis. The fine, which is not final as Austria Post has challenged the DSB’s decision (“Decision”) before the Federal Administrative Court (Bundesverwaltungsgericht). The fine was at the time of issuance the largest ever imposed in Austria for GDPR infringements.

This paper considers the challenges faced by the Universal Postal Union such as the decline in the demand for letter services and the emergence of vibrant commercially focused delivery services for goods. The latter operate under different rules than postal services and provide integrated services on a regional or global basis. The UPU on the other hand provides a framework for national governments and their postal service providers to offer international services on the basis of interoperable domestic networks. But this gives rise to issues concerning the compensation of members for work undertaken on behalf of other members (terminal dues) and the relationship between members (i.e. governments) and operators. Is there a future for the UPU, and if so what changes will be necessary? The paper draws on Affiliationids : Aff1, Correspondingaffiliationid : Aff1 experiences in the aviation and telecommunications sectors in tackling similar challenges.

Postal markets are facing probably the biggest changes mainly caused by users switching to digital communications and by the rapidly growing e-commerce market. Consequently, postal markets are experiencing declining volumes of traditional mail and an increasing volume of parcels (Hearn, 2016). In order to meet the new user expectations, governments are trying to provide public services in a digitalized form (Gori & Parcu, 2020). At the same time, new entrants like Amazon, IKEA, Allegro and Tesco, are posing a challenge to traditional postal markets by directly delivering their products faster and more cheaply.

The postal industry is changing mainly due to the ongoing digitalization and the subsequent growth of e-commerce. In this new market environment, the sustainability of the USO is a crucial issue for USPs. In this context, the SGEIs may provide an interesting opportunity as they can represent a new source of revenues/profits for the UPSs. They are entrusted for services/products offered in a situation of a market failure and their notion is wide and flexible. Examining La Poste and bpost cases we showed that USPs’ postal frameworks can be used to provide SGEIs exploiting the ubiquity of postal networks (the Post Office and the delivery networks). These cases represent “win-win situations” as all the market actors receive benefits and competitors are not damaged.

The aim of this paper is to supplement discussion of postal regulation in the digital age, by considering whether a part of the Universal Service Obligation (USO) funding solution might be found by redefining the reserved area of monopoly postal services to match customer communications using postal services. This strategy could reinforce long-term sustainability of universal service provision.

The postal services market is going through a transformation that is challenging traditional postal operators’ ability to meet their universal service obligation (USO). Letter mail decline and increased parcel volume are driving operational changes and costs and re-shaping consumers’ behaviors. In order to stay competitive in a rapidly changing market, postal operators need to apply advanced technology solutions to the entire delivery chain while asked to increase efforts to promote sustainable deliveries and reduce environmental impact of their operations. Adapting to the new scenario requires investments in infrastructure and technology to support the delivery of growing parcel volumes and improve customers’ shipping experience whilst coping with obligations related to universal service provisions.

The notion of unfairness of the financial burden resulting from the universal service obligation (‘USO’) finds its application in a number of contexts, among which the postal sector. Although the notion of the unfairness of the burden of the USO is embedded in the European postal regulatory framework since it was first introduced in 1997 by the first European postal directive, we observe a lack of a rigorous and robust methodology to assess unfairness by national regulators. Similarly, academic research on this subject matter has not yet developed a methodological framework to assess unfairness. Methodologies that rely exclusively on arbitrary thresholds based on ratios of revenues and costs of the USP, while easy to apply, are not supported by a clear economic rationale. This paper aims to fill the gap by developing a methodology to identify the difference in profitability between USPs that bear the USO and their comparators. We show that this method can be applied by means of a traditional non-parametric comparator approach, and by means of a regression analysis. We also describe how one can apply this profitability benchmarking approach to USPs that do not offer exclusively (or mainly) postal services, but operate across different sectors (e.g. financial services).

The concept of net cost of the universal service obligation (USO) is based on the profit difference of the universal service provider (USP) with and without the USO (Panzer, 2000 and Cremer et al., 2000). In recent times, USPs have been challenged with sharp declines of letter mail and transactions in post offices. As a result, net cost calculations may need to be adapted more regularly. Besides, USP undergo changes in regulation within and outside the scope of the USO. In Switzerland for example, a new provision demands that Swiss Post must deliver newspapers nationwide until 12.30. Such regulatory changes also affect net cost of the USO.

As the world is facing an unseen health crisis leading to an economic crisis, global warming is one of the major threats to society and the economy that also requires strong actions, now. Limiting global warming to well below 2 degrees Celsius requires reductions of 45 percent in CO₂ emissions by 2030, and reaching carbon neutrality by 2050 worldwide. The transition to a low-carbon economy implies a massive transformation of the economy. If undeniably part of the solution lies in true carbon pricing as demonstrated by economic theory, the difficulties to reach a coordinated agreement and to set the right carbon price call for instant civic actions taken by all economic agents. Insights into the challenges but also the opportunities faced by postal operators as logisticians on the first- and last-mile and as actors who have a real impact on the territories in which they are involved through their commercial activities but also through the services of general interest they provide, are given in this chapter. Many are alrealdy carbon-neutral and aim to become carbon-positive. To reach this objective, well-designed policies need to support R&D and investments in new technologies and to induce people to change their habits towards more sustainable lifestyles. A pre-requisite for adopting new habits is to have a clear information on the impact of our behavior and the alternatives we have to do better for the planet.

The covid-19 economic crisis shows that our economic model is sensitive to external shocks. The traditional linear “take, make, dispose” economy has an economic cost and poses a problem of sustainability in the medium and long term. The transition towards a circular economy aimed at eliminating waste and the linear use of resources would limit the risks of external shocks and could be an opportunity for postal operators.