Abstract
The British Post Office introduced two-tier pricing in the 1970s. The basic idea was to differentiate First Class from Second Class mail according to service quality rather than content. Processing of Second Class Mail is deferred during peak periods, recognizing inter alia the added cost of meeting fixed service standards at such times. The introduction of two-tier pricing was a major breakthrough at the time, both from a practical as well as a theoretical point of view, and it has been employed successfully in varying forms by several other Post Offices (POs) since then. Crew, Kleindorfer and Smith (1990) (CKS) showed how two-tier pricing was related to the mainstream of the theory of peak-load pricing, which can be traced back at least to Boiteux (1949). CKS demonstrated that such service-differentiated pricing offered an efficient solution to the peak-load problem. In practice, the system of First Class and Second Class has continued basically unchanged from the original path-breaking idea of the 70’s, with some adjustments being made in the application, definition and measurement of service standards.
The authors acknowledge the helpful comments of John Panzar, Ian Reay, and Frank Rodriguez on an earlier version of this paper.
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Crew, M.A., Kleindorfer, P.R. (2002). Two-Tier Pricing under Liberalization. In: Crew, M.A., Kleindorfer, P.R. (eds) Postal and Delivery Services. Topics in Regulatory Economics and Policy Series, vol 41. Springer, Boston, MA. https://doi.org/10.1007/978-1-4613-0253-7_7
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