A Branching AIDS Model for Estimating U.S. Postal Price Elasticities

  • Lyudmila Y. Bzhilyanskaya
  • Margaret M. Cigno
  • Edward S. PearsallEmail author
Part of the Topics in Regulatory Economics and Policy book series (TREP, volume 50)


In this paper we apply an econometric method based upon the Almost Ideal Demand System (AIDS) originally developed by Deaton and Muellbauer (1980) and extended by Hausman et al. (1994) to estimate a series of complete matrices of price elasticities for U.S. Postal Service (USPS) domestic mail. Our model organizes USPS revenues, volumes and prices as a tree with branches corresponding to increasing disaggregations of U.S. domestic mail by class, by rate category and by shape. The matrices of price elasticities apply to the levels of disaggregation as we proceed up the tree. Our results demonstrate that modern econometric methods are capable of producing complete matrices of postal price elasticities at a level of detail and accuracy that is beyond the capabilities of conventional methods.


Price Elasticity Revenue Share Share Equation Average Revenue Exponential Trend 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Cigno, M. M., Clendenin, K. K., & Pearsall, E. S. (2013a). Estimation of the standard linear model under inequality constraints.
  2. Cigno, M. M., Patel, E. S., & Pearsall, E. S. (2013b). Estimates of US postal price elasticities of demand derived from a random-coefficients discrete-choice normal model, Ch. 6. In M. A. Crew & P. R. Kleindorfer (Eds.), Reforming the postal sector in the face of electronic competition. Cheltenham/Northampton: Edward Elgar.Google Scholar
  3. Cigno, M. M., Clendenin, K. K., & Pearsall, E. S. (2014). Are U.S. postal price elasticities changing? Ch. 4. In M. A. Crew & T. J. Brennan (Eds.), The role of the postal and delivery sector in a digital age. Cheltenham/Northampton: Edward Elgar.Google Scholar
  4. Deaton, A., & Muellbauer, J. (1980). An almost ideal demand system. The American Economic Review, 70(3), 312–326.Google Scholar
  5. Hausman, J. A., Leonard, G. K., & Zona, J. D. (1994). Competitive analysis with differenciated products. Annales d’Economie et de Statistique, 34, 159.Google Scholar
  6. Hausman, J. A., & Leonard, G. K. (2005). Competitive analysis using a flexible demand specification. Journal of Competition Law and Economics, 1(2), 279–301.CrossRefGoogle Scholar
  7. Pearsall, E. S. (2005). The effects of work-sharing and other product innovations on U.S. postal volumes and revenues, Ch. 11. In M. A. Crew & P. R. Kleindorfer (Eds.), Regulatory and economic challenges in the postal and delivery sector. Boston: Kluwer.Google Scholar
  8. Pearsall, E. S. (2011). An econometric model of the demand for U.S. postal services with price elasticities and forecasts to GFY 2015, Prepared for the U.S. Postal Regulatory Commission, January 11, 2011, revised February 2012.Google Scholar
  9. Swinand, G., & Hennessy, H. (2014). Estimating postal demand elasticities using the PCAIDS method, Ch. 5. In M. A. Crew & T. J. Brennan (Eds.), The role of the postal and delivery sector in a digital age. Cheltenham/Northampton: Edward Elgar.Google Scholar

Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  • Lyudmila Y. Bzhilyanskaya
    • 1
  • Margaret M. Cigno
    • 1
  • Edward S. Pearsall
    • 2
    Email author
  1. 1.Office of Accountability and Compliance (OAC)U.S. Postal Regulatory Commission (PRC)Washington, DCUSA
  2. 2.AlexandriaUSA

Personalised recommendations