Discussion Papers

Sonja Schölermann

Vertikale Integration bei Postnetzbetreibern – Geschäftsstrategien und Wettbewerbsrisiken
Nr. 271 / Dezember 2005


Deutsche Post AG has intensified its vertical activities during the last years. Foundation of subsidiaries and acquisitions of firms in upstream and downstream markets have created a vertical structure enabling DPAG to offer services covering the whole value chain. Services for business customers include every productive step ranging from physical production of postal items to response management. DPAG does not offer upstream or downstream services for private customers due to inexistent demand.

For the purpose of this study all upstream and downstream activities have been subsumed as vertically integrated activities. Vertical integration can affect competition and the activities of DPAG have been taken as an example to demonstrate the impact of vertical integration of incumbent postal service providers on competition. As a starting point, the affects on competition have been discussed from a theoretical point of view by juxtapositioning the arguments of the main competition theories, Harvard School and Chicago School. There are both negative and positive impacts of vertical integration: efficiencies on the one hand and the leverage of market power or even market foreclosure on the other hand. Application to the vertical structure of DPAG has shown that efficiency gains, which are composed of production cost and transaction cost efficiencies, exist in very few cases of vertically integrated activities in the postal sector. Transaction cost reductions are unlikely to exist in the case of vertical integration as the upstream and downstream activities of DPAG are rather unspecific and vertical integration will only lead to lower transaction cost than market or cooperative transaction if the transaction is highly specific and the transaction environment is uncertain.

Besides efficiency gains there are also risks to competition, especially in upstream areas. Sector specific regulation reduces possibilities to leverage market power but cannot impede it completely. There are three strategies to leverage market power: discrimination of access to infrastructure, of prices and non-price discrimination. Market foreclosure by access foreclosure is effectively impeded but access to infrastructure can be discriminated in terms of price and other non-price measures. Price discrimination can take the form of third grade price discrimination, predatory pricing and bundling. Discriminatory price-setting is controlled by the regulatory authority but a risk remains due to cost allocation problems which also causes great difficulties to prove discriminatory prices. Non-price discrimination causes risks to competition especially in upstream markets where competitors need access to DPAG services. To prevent discriminatory measures of the incumbent service provider it is immanent to have access to information, especially cost information, which is the main recommendation of the study. To provide for a better basis for regulatory interference it is also recommended to broaden the competence of the regulatory authority so cases of abuse of a dominant position in upstream and downstream activities no longer suffer from unsettled competence assignments of regulatory and competition authority. [Full text available in German only]

Diskussion Paper is available for download.

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