Discussion Papers

Martin Zauner

Rebates on postal services from a competition policy perspective

No. 306 / March 2008

Summary

In 2008, the German postal market was fully liberalized. Simultaneously, bulk mail (50 pieces or more), was released from ex ante price control. Bulk mail accounts for the major part of total demand for letters. Deutsche Post AG (DPAG)now has more flexibility to adjust prices and offer rebates in order to react to, or prevent, market entry. However, rebates and bulk mail prices are subject to sector-specific ex-post review by the federal Network Agency (BNetzA, “Bundesnetzagentur”), in addition to general review under competition law. Since the majority of letter volume has been released from ex ante price control, this sector-specific ex post price review has become substantially more important. The objective of the study is it to discuss criteria for assessing rebates from a competition-policy-perspective as well as rebate models that will likely emerge in the future, and to derive conditions for an effective ex-post control.

The study examines selected cases of competition and regulatory authorities that dealt with rebates in postal markets. We conclude that at least three kinds of rebates are generally considered abusive: Fidelity rebates offered by dominant firms, prices below marginal costs, and rebates that intend to transfer market power to other, more competitive markets.

These criteria are used to discuss rebates that are likely to emerge in the German postal market : For example, DPAG grants combined quantity-time-rebates to direct mail (Infopost) customers. These rebates depend on the volume of each posting (quantity) and on the total volume in a quarter (time). The time-component is similar to fidelity rebates, and therefore, a longer time period in the rebate scheme (e.g. one year) may have to be considered abusive. Deutsche Post could further introduce geographically differentiated (zonal) prices, i. e. charge different prices for mail delivered in different geographic areas. Most drastically,. the incumbent could sets lower prices only in those areas where competitors operate. Zonal prices appear abusive whenever prices reflect competition in a region more than cost differences between regions.

Finally, the study observes that the present rules for the sector-specific ex-post control could be improved in order to ensure effective competition in the letters market. There are three suggestions from German telecommunications law that we recommend to improve regulatory procedures for ex post review in the postal sector: 1. Prices agreed between DPAG and customers are usually unknown to the regulator, which makes it hard to review prices effectively. We recommend that dominant operators should be required to disclose all price agreements to the regulator. 2. Currently BNetzA’s (postal) regulatory proceedings can be opened only ex officio, we suggest third parties (competitors, customers or associations) should have the right to file proceeding, too. 3. A significant share of postal costs are common costs that cannot be attributed directly. Analysis of these costs is a complex challenge for price regulation and requires permanent (not ad hoc) cost analysis.

[only a german version available]

Discussion Paper is available for download.

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