Discussion Papers

Alex Kalevi Dieke, Petra Junk, Sonja Thiele, Martin Zauner

Cost standards for ex-post price control in the postal sector

No. 368 / June 2012

(full Version only available in German)


Since full opening of the German letter post market on 1 January 2008, the majority of Deutsche Post letter products are subject only to ex-post control. Since then, an increasing price competition for bulk mail products can be observed. Reviewing whether prices are cost-oriented is a key element of ex-post price control.

The study first examines the cost standards that are applied in ex-post price control in Germany and abroad. The study then discusses practical problems in determining and reviewing costs in the German letter post market and identifies possible solutions.

European and German competition law do not explicitly determine a relevant cost standard. In legal decisions on ex-post control, prices below average variable cost (AVC) are always classified as abusive. Prices below average costs (AC) are only regarded as abusive if predatory intentions can be proved. In the majority of examined cases in the postal sector, long run average incremental costs (LRAIC) were used as the relevant cost standard.

German postal law does not clearly determine a relevant cost standard for ex-post price control. In various decisions, the Federal Network Agency (BNetzA) has applied the so-called "costs of efficient service provision" (short: "efficient costs") used in ex-ante price regulation as cost standard for ex-post control, too. Efficient costs are based on the LRAIC cost standard, and include mark-ups for overhead costs and profit. We see no reason why this cost standard should be changed for ex-post price control in Germany. In order to enhance legal certainty, efficient costs should be explicitly specified as the relevant cost standard for ex-post price control in the German postal act.

The study leads to the following recommendations regarding relevant cost standards for ex-post price control in postal markets:

  • The German postal act currently prescribes explicit consideration of extraordinary burdens resulting from the heritage of being a public operators. We argue this sentence in the German postal act should be deleted (at least for ex-post control): For ex-post control, these burdens should be attributed according to the causation principle, just as any other cost. The current special treatment of these burdens allows DPAG to ignore significant cost components for ex-post control.
  • The requirement for regulatory accounting separation should be reviewed and enforced effectively and transparently (regular reports on regulatory accounts to BNetzA).
  • Common costs should be allocated to products to the largest possible extent. The rules for cost allocation should be determined or approved by BNetzA. Public discussion and more transparency on these rules for cost allocation would also be helpful.
  • The rights of BNetzA to request documentation on costs and contracts should be strengthened.

Discussion Paper is available for download.

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