Discussion Papers

Ulrich Stumpf

Is there a Place for Reserved Services?

Nr. 61 / Dezember 1990 Summary The extent of postal monopoly protection has come under review in many countries. The Green Paper of the European Commission will propose minimum requirements for liberalization of postal markets. This paper undertakes a critical examination of the case for reserved services. In the paper, it is argued that the universal service obligation placed upon postal administrations is an obligation to cross-subsidize and, therefore, requires that the mail streams generating the surpluses are protected from cream-skimming by private competitors. Weight and price are suggested as criteria for defining the reserved area.

It is also argued in the paper that the case for reserved services is a transitory one. The potential of postal administrations to generate surpluses in reserved areas for cross-subsidization will fade away, as direct competition (by circumvention of reserved services regulations) and substitute competition will gradually erode the reserved area. Moreover, the goals associated with the universal service obligation may be realized without restraints of competition with carefully specified direct subsidies to service elements otherwise not provided in a free market. It is concluded that postal administrations should pursue their efforts in becoming competitive service providers rather than staying a public utility or becoming a supplier of last resort.

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