Abstract
Virtually every post in an industrialized country delivers monopoly products everywhere at a uniform price in spite of large differences in the cost of serving different geographic areas. This raises the possibility of an entrant competing successfully even though it has higher costs than the incumbent. A simple example illustrates this. Suppose a post serves a country composed of two areas and its cost to deliver a piece of mail in one area is five cents and is 15 cents in the other. A breakeven post with a uniform tariff would charge its average cost of 10 cents a piece for delivery throughout the country. If a less efficient entrant’s cost for serving the low cost area were six cents a piece, it could charge less than 10 cents in that area and be profitable. Each piece of mail that the entrant delivered would raise the average cost of delivery in the country. Ceteris paribus, inefficient entry means that the total resources required to deliver mail increases.
The views expressed in this paper are those of the authors and do not necessarily represent the opinions of La Poste of the Postal Rate Commission
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Bernard, S. et al. (2002). Delivery Cost Heterogeneity and Vulnerability to Entry. In: Crew, M.A., Kleindorfer, P.R. (eds) Postal and Delivery Services. Topics in Regulatory Economics and Policy Series, vol 44. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-0233-3_9
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