Abstract
Letters markets were opened to full competition by 2011 in most EU countries. We can thus observe some market outcomes post liberalization: the broad picture suggests that customers have been somewhat sticky. In this paper, we use a differentiated Bertrand economic model—typically used for merger simulation—to assess possible factors that affect the development of competition in post. This model captures the apparent characteristics of different postal products markets based on evidence of current market outcomes and can assist policy makers in evaluating policies and assessing the strength of some determinants of market outcomes, such as product differentiation and possibly relative strength of the brand of the incumbent.
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Notes
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Postal and Parcel Technology International, March 2018, http://www.ukimediaevents.com/publication/643a6be7/28.
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Brand Finance is a brand business valuation consultancy firm certified to provide brand valuations that is fully compliant with ISO 10668, the global standard on monetary brand valuations.
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Andersson, Bengtsson, and Johanna Eriksson (2018) presented a paper at the 26th conference on Postal and Delivery Economics, finding large and significant differences between Sweden and Denmark.
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See Copenhagen Economics (2018), EC Main development in postal markets 2013–2016, preliminary findings. This is a qualitative assessment based on the two reports mentioned earlier—the evaluation should be treated with caution, as there are a number of factors that could affect the intensity of competition that would not be fully reflected in this assessment.
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See EC case decisions for Ireland—Case No COMP/M.6992 HUTCHISON 3G UK/TELEFONICA IRELAND, Germany—CASE M.7018—TELEFÓNICA DEUTSCHLAND/E-PLUS, and Italy—CASE M.7758-HUTCHISON 3G ITALY/WIND.
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This will of course depend on the specific circumstances under consideration; and additional assumptions and parameterizations may be required to capture wider market trends, for example, e-substitution in the case of postal markets.
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The assumed shape of the demand curves may have a significant impact on the outcomes when modelling a range of scenarios e.g. mergers. For example, Constant elasticity demand curves tend to have much bigger effects than linear demand curves and may result in more than 100% pass-through of cost changes. Where possible estimating the impact of changes under different demand system assumptions may be desirable.
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Although, as noted previously, it is necessary to make assumptions about the shape of the demand curves, and these assumptions can affect the results.
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A full mathematical description of the model is available from the authors.
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We note that it would also be possible to assume the parameters of the demand curves, i.e. elasticities and constants and from this estimate the optimal prices and quantities. We have chosen to do the reverse as this is consistent with how the demand curves can be estimated in practice (i.e. in merger impact assessments) when the value of these inputs are known.
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The views expressed in this paper are solely attributable to its authors and do not necessarily represent those of Frontier Economics. The authors thank Ankit Parasrampuria at Frontier Economics for his research support.
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Carslake, I., Houpis, G., Monaghan, E. (2018). Brand, Product Differentiation and Postal Market Outcomes. In: Parcu, P., Brennan, T., Glass, V. (eds) New Business and Regulatory Strategies in the Postal Sector. Topics in Regulatory Economics and Policy. Springer, Cham. https://doi.org/10.1007/978-3-030-02937-1_17
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