Discussion Papers

Alex Kalevi Dieke, Petra Junk, Antonia Niederprüm, Martin Zauner

Price Strategies of Incumbents and Competitors in the Letters Market

No. 331 / December 2009


In Germany, the exclusive license of Deutsche Post AG (DPAG) ended at the end of 2007, opening the German letters markets for competition. At the same time, bulk mail (posted in consignments of 50 letters or more) was released from ex ante price regulation. Bulk mail accounts for the vast majority of total mail volume in Germany. These changes in the regulatory framework allow for changes in the operators’ pricing policies.

The aim of this study is to discuss the future development of price strategies in the German letters market, and possible areas of concern for regulators. For this purpose, different price strategies of incumbents and competitors in European letters markets were analysed and categorised. Key results:

  • Incumbents generally pursue either a ‘premium strategy’ or a ‘surplus strategy’, or hybrid forms of these two strategies. They make extensive use of price discrimination, such as volume-based prices and discounts, prices based on the geographic location of delivery (zonal tariffs), prices reductions for accepting longer transit times, price discrimination between single piece items and identical bulk mail, and functional discounts for mail preparation.
  • Competitors mostly pursue a ‘surplus strategy’ and/or a ‘budget price strategies’. Generally, they use less complex pricing structure. They predominantly apply volume-based price differentiations and minimum quantities per posting, and usually do not use other options of differentiation. Competitors in Germany generally adopt the incumbent’s product structure and have different prices for single piece items and identical bulk mail (as DPAG does). Other competitors do not publish price lists, but negotiate special terms with their customers.

In Germany, DPAG uses zonal and temporal price discrimination only for newspapers and periodicals. In the future, DPAG might extend these price strategies to other types of mail, like direct mail. For zonal tariffs in particular, the regulators’ challenge will be to assess whether different prices reflect differences in cost, or primarily serve to obstruct competitors.

Finally, it can be expected that DPAG and its competitors in Germany will increasingly offer individual terms to senders. This will reduce transparency in the market for both customers and regulators. Consequently, any abusive pricing will be harder to identify. This raises the question whether the German regulator’s rights to request information on customer contracts, and thus its means to control the market are adequate.

(Full version only available in German language)

Discussion Paper is available for download.

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