Access Pricing and Entry in the Postal Sector

Abstract

Postal markets have been open to competition for a long time. But, with a few exceptions, the competitors of the incumbent postal operator are active on the upstream segments of the market -preparation, collection, outward sorting and transport of mail products. With the further steps planned in the liberalization process, there are new opportunities to extend competition to the downstream segments of the market -the delivery of mails. In the future, two business models will be possible for the new postal operators: (1) access: where the firm performs the upstream operations and uses the incumbent's delivery network and (2) bypass where the competing firm controls the entire supply chain and delivers mails with its own delivery network. These two options have different impacts on welfare and the profit of the incumbent operator. The choice between access and bypass depends on the entrant's delivery cost relative to the cost of buying access to the incumbent operator (the access price... In the future, two business models will be possible for the new postal operators: (1) access: where the firm performs the upstream operations and uses the incumbent's delivery network and (2) bypass where the competing firm controls the entire supply chain and delivers mails with its own delivery network. These two options have different impacts on welfare and the profit of the incumbent operator. The choice between access and bypass depends on the entrant's delivery cost relative to the cost of buying access to the incumbent operator (the access price). In this paper, we derive optimal -welfare maximizing-stamp and access prices for the incumbent operator when these prices have an impact on the delivery method chosen by the entrant. We show how prices should be re-balanced when the entry method is considered as endogenous i.e. affected by the incumbent's prices.

Access, Bypass and Productivity Gains in Competitive Postal Markets

“…In this paper, we leave aside the exact description of the optimal prices. This work has been done elsewhere by Laffont and Tirole (1994) or Crew and Kleindorfer (1992), Bloch and Gautier (2007) and Billette de Villemeur et al (2007) for the postal sector. For our argument, it is sufficient to consider the maximization problems faced by the two firms.…”

“…As mentioned, FMO means that the entrant can bypass the incumbent's delivery network and build up its own. Bypass can be detrimental for both the incumbent's profit -with a negative impact on its ability to finance the USO-and welfare (Crew and Kleindorfer 2005, De Donder 2006, and Bloch and Gautier 2007. Our interest lies in the strategies that the incumbent can develop to prevent (inefficient) bypass by the entrant.…”

“…InBloch and Gautier (2007), the entrant is competitive and chooses the cheapest option for mail delivery. Therefore the letter price does not influence the delivery decision and the only possible way to deter bypass is to make access less costly than bypass i.e.…”

“…InBloch and Gautier (2007), we assumed F 2 to be zero. In this case, the entrant can choose between two constant returns to scale technologies for mail delivery.…”

Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All

“…Valletti et al (2002) show that the nature of price competition and the extent of coverage by incoming firms are altered by the imposition of coverage and/or uniform price constraints. Bloch and Gautier (2008) show that the efficiency of the USP determines the mode of delivery (access or bypass) adopted by competing postal operators. d 'Alcantara and Gautier (2008) show that the countries' geographical characteristics have a major impact on the entrant's scale of operations and on the profits of the historical operator.…”