Discussion Papers

Monika Plum, Stephan Steinmeyer

Preisdifferenzierung im Briefdienst - volkswirtschaftliche und unternehmenspolitische Aspekte
Nr. 170 / Februar 1997

Summary

Uniform tariffs are a traditional feature in the pricing of postal services. This is mostly due to the (former) monopoly position of postal enterprises. In recent times competition in the postal sector is growing. Liberalization of postal services leads to direct competition in some countries. In addition postal enterprises are faced by indirect competition through substitution of letter mail by electronic media. The emergence of competition is reflected in a more differentiated and cost-oriented pricing policy of postal enterprises.

From an enterprises viewpoint price differentiation should help to realize cost savings and competitive advantages to face the growing competition. Geographical price differentiation is a possible reaction towards market entry in geographically restricted areas. Volume discounting is an instrument to prevent customers from contracting with competitors and in addition raises the utilization of capacity through higher volumes. The introduction of worksharing discounts requires an unbundling of the postal services components. Worksharing results in cost savings for the postal enterprise. Price differentiation based on the content of a mailing is no longer viable in a competitive environment. Market entry mostly occurs in the segment of computer-generated bulk mail without any content-requirements. Therefore postal enterprises replace content-requirements by a quality-related differentiation in the speed of delivery. Apart form this kinds of price differentiation, which are given to all customers if certain conditions are fulfilled, discounts are also given individually to special customers. This is generally not related to costs, but also to prevent contracting away of customers.

Apart from the viewpoint of a single enterprise, an economic assessment of price differentiation should take into account the effects on the economy as a whole. A more differentiated pricing structure may result in efficiency gains due to higher cost-orientation or worksharing. In a market in transition from monopoly to competition it is of vital importance to establish workable competition. This includes to prevent pricing structures that deter competition. First of all it is important to identify price discrimination. Pricing structures are discriminating if the differences in prices do not equate the differences in average incremental costs. Though also uniform prices may be discriminating if there are cost-differences between the products. In some cases, price discrimination may be justified. If there is e.g. a universal service obligation which implies geographically uniform tariffs, then geographically discriminating prices are justifiable.

The next step is to find out if discrimination, which is not justifiable, restrains competition. This depends on the market position of the enterprises. If enterprises are market dominant it is more likely that a discriminating price structure restrains competition. Therefore the price structure of market dominant enterprises should be monitored to prevent unjustifiable price discrimination. This monitoring of pricing structures requires a detailed cost analysis to find out if cost differences equal the differences in prices. without these cost analyses it is only possible to indicate some cost factors which may justify differentiated prices.

Geographical price structures may be non-discriminating, if prices in rural areas are higher than in urban areas because of cost-differences. In this case, geographically uniform prices may be discriminating if they are not justified through obligations. Volume discounts may be explained by cost savings in all parts of the production process. Volume discounts should be calculated only on the basis of volume or revenue from those products, where cost savings occur. Vertical differentiation of prices includes an unbundling of components. If prices of those components reflect the cost savings of the postal enterprises, there will be only efficient worksharing between customers and postal enterprises. A differentiation of prices related to the content of mailings cannot be justified by differences in costs. Instead of content-requirements, there should be quality-related price structures, expressed in different speeds of delivery. Customer-specific price differentiation is usually discriminating, because discounts are not based on observable cost-differences but on personal features and are not given to all customers with the same conditions.

The application of price differentiation and related consequences may be illustrated in two country-studies. In the United States the postal service applies a strongly vertical price structure with the effect of creating competition in a part of the postal value chain but keeping a monopoly on the delivery process. A detailed system of discounts for presorting, bar-coding and down-stream access has created worksharing on a large scale, not only by customers, but through letter-shops, consolidators etc. Due to the specific regulatory process, detailed cost-data are available and it is possible to identify if price differences reflect differences in costs. Sweden is a good example for observing the pricing behavior of postal enterprises in liberalized postal markets. The former
monopoly enterprise introduces a variety of differentiated prices as a reaction on the market entry in urban areas. Analyzing this behavior makes clear, that the identification of non-justifiable discrimination is a vital importance in liberalized postal markets.

Only German language version available.

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