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EMERGING COMPETITION in POSTAL and DELIVERY SERVICES Topics in Regulatory Economics and Policy Series EMERGING COMPETITION IN POSTAL AND DELIVERY SERVICES Topics in Regulatory Economics and Policy Series Michael A. Crew, Editor Graduate School of Management, Rutgers University Newark, New Jersey, U.S.A. Previously published books in the series: Rowley, C., R. Tollison, and G. Tullock: Pechman, C.: Political Economy of Rent-Seeking Regulating Power: The Economics of Frantz, R.: Electricity in the Information Age X-Efficiency: Theory, Evidence and Gordon, R.K.: Applications Regulation and Economic Analysis: A Crew, M.: Critique over Two Centuries Deregulation and Diversification of Blackmon, G.: Utilities Incentive Regulation and the Shogren, J.: Regulation of Incentives The Political Economy of Government Crew, M.: Regulation Incentive Regulation for Public Hillman, J., and R. Braeutigam: Utilities Price Level Regulation for Diversified Crew, M., and P. Kleindorfer: Public Utilities Commercialization of Postal and Einhom, M.: Delivery Services Price Caps and Incentive Regulation Abbott, T.: in Telecommunications Health Care Policy and Regulation Crew, M.: Goff, B.: Competition and the Regulation of Regulation and Macroeconomic Utilities Performance Crew, M., and P. Kleindorfer: Coate, M.B., and A.N. Kleit: Competition and Innovation in Postal The Economics of the Antitrust Services Process Thompson, H.: Frantz, R.: Regulatory Finance: Financial X-Efficiency: Theory, Evidence and Foundations of Rate of Return Applications (2nd edition) Regulation Crew, M.: Crew, M.: Managing Change in the Postal and Economic Innovations in Public Utility Delivery Industries Regulation Awerbuch, S., and A. Preston: Crew, M., and P. Kleindorfer: The Virtual Utility Regulation and the Nature of Postal Gabel, D., and D. Weiman: and Delivery Services Opening Networks to Competition: Oren, S., and S. Steven: The Regulation and Pricing of Access Service Opportunities for Electric Zaccour, G.: Utilities: Creating Differentiated Deregulation of Electric Utilities Products Young, W.: KA Lawrences, W.B. Tye, and S.C. Atomic Energy Costing Myers: Crew, M.: Regulatory Risk: Economic Principles Regulation Under Increasing and Applications to Natrual Gas Competition Pipelines EMERGING COMPETITION IN POSTAL AND DELIVERY SERVICES edited by Michael A. Crew Graduate School of Management Rutgers University Newark, New Jersey, U.S.A. and Paul R. Kleindorfer The Wharton School University of Pennsylvania Philadelphia, Pennsylvania, U.S.A. SPRINGER SCIENCE+BUSINESS MEDIA, LLC ISBN 978-1-4419-5080-2 ISBN 978-1-4757-5122-2 (eBook) DOI 10.1007/978-1-4757-5122-2 Library of Congress CataIoging-in-PubIication Data A c.J.P. Catalogue record for this book is available from the Library of Congress. Copyright © 1999 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 1999 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC. Printed on aCid-free paper. CONTENTS Authors vii Preface and Acknowledgements ix Legal and Institutional Perspectives 1 GATS and Physical Delivery Networks 3 James I. Campbell, Jr. 2 Postal Pipeline Liberalization: the Beginning of the End for the 21 Uniform Tariff? Stephen Agar and Ian Reay 3 The Swiss Postal Law of 1998: Is It Worth the Monopoly 31 Protection? Matthias Finger and Colette Friedli 4 Postal Joint Ventures and EC Competition Law Considerations: 43 A Case Study Based on a Venture Between the Nordic PPOs Pekka Leskinen and Kent Karlsson 5 Postal Service and the Telecommunications Analogy 51 Carl R. Danner Cost and Productivity Analysis 6 Productivity and Technical Change in a Public Service 75 Enterprise Michael D. Bradley and Jeff Colvin 7 Empirical Estimation of Incremental Costs for the U.S. Postal 89 Service Michael D. Bradley, Christopher S. Brehm, Jeffrey Colvin, and William M. Takis 8 Technico-Economic Analysis of the Costs of Outside Work in 101 Postal Delivery Bernard Roy 9 Proprietary Information Networks and the Scope of the Firm: 123 the Case of International Courier and Small Package Services in Japan Tetsuo Wada and Jack A. Nickerson vi EMERGING COMPETITION IN POSTAL AND DELIVERY SERVICES Universal Service and Entry 10 An Analysis of the Potential for Cream Skimming in the United 141 States Residential Delivery Market Robert H. Cohen, William W. Ferguson,John D. Waller, and Spyros S. Xenakis 11 Mail Goes Where the Money Is: A Study of Rural Mail Delivery 159 in the U.S. Marshall Kolin and E. Davis 12 Managing the Universal Service Obligation 181 David Rawnsley and Nomi Lazar 13 Estimating the Cost of the Universal Service Obligation in 195 Postal Service Frank Rodriguez, Stephen Smith, and David Storer 14 Authorization Procedures in The Postal Sector: Possible 209 Lessons from Other Sectors for Entry Regulation Catherine Gallet Demand Analysis and the Structure of Postal Payment Systems 15 How Important Have Price and Quality of Service Been to Mail 229 Volume Growth? John Nankervis, Isabelle Carslake, and Frank Rodriguez 16 The Future of Targeted Communication in Finland 245 Heikki Nikali 17 Demand for Letters in Portugal 265 Alberto Alves Pimenta and PatrIcia Matoso Ferreira 18 Transaction Costs of Alternative Postage Payment and 281 Evidencing Systems John Haldi and John T. Schmidt 19 Transaction Cost Economics of Postage Payment and 295 Mailer-Post Interface Leon A. Pintsov, S. Joshi, and Theresa Biasi Price Regulation 20 Postal Worksharing: Welfare, Technical Efficiency, and Pareto 311 Optimality Robert W. Mitchell 21 Price-Cap Regulation in the Postal Sector: An International 335 Comparison and Assessment David E. Treworgy, Thomas M. Sharkey, David R. Fronk, and Michael J. Kehoe AUTHORS Stephen Agar, UK Post Office Legal Services Theresa Biasi, Pitney Bowes Michael D. Bradley, George Washington University Christopher S. Brehm James I. Campbell, Jr., Attorney Isabelle Carslake, U.K. Post Office Robert H. Cohen, U.S. Postal Rate Commission Jeffrey Colvin, U.S. Postal Service Carl R. Danner, Wilk & Associates, Inc. William W. Ferguson, U.S. Postal Rate Commission Patricia Matoso Ferreira, Portuguese Post Matthias P. Finger, IDHEAP Colette Friedli, Swiss Post David R. Fronk, U.S. Postal Service Catherine Gallet, La Poste John Haldi, Haldi Associates, Inc. S. Joshi, Pitney Bowes Kent Karlsson, Boden de Bandt de Brauw Jeantet Lagerlof & Uria Michael J. Kehoe, Price Waterhouse Marshall Kolin, U.S. Postal Service Nomi lazar, LlNX Pekka leskinen, Finland Post Robert W. Mitchell, U.S. Postal Rate Commission John Nankervis, University of Surrey Jack A. Nickerson, Washington University in St. Louis Heikki Nikali, Finland Post Alberto Alves Pimenta, Portuguese Post leon A. Pintsov, Pitney Bowes, Inc. David A. Rawnsley, Postal Services International Ian Reay, U.K. Post Office Frank Rodriguez, U.K. Post Office Bernard Roy, La Poste John T. Schmidt, Pitney Bowes, Inc. Thomas M. Sharkey, General Accounting Office viii EMERGING COMPETITION IN POSTAL AND DELIVERY SERVICES Edward Smith, U.S. Postal Service Stephen Smith, Coopers & Lybrand David Storer, Coopers & Lybrand William M. Takis, Price Waterhouse David E. Treworgy, PricewaterhouseCoopers Tetsuo Wada, Institute for Posts and Telecommunications Policym MPT John D. Waller, U.S. Postal Rate Commission Spyros S. Xenakis, U.S. Postal Rate Commission PREFACE AND ACKNOWLEDGEMENTS This book arises out of the Fifth and Sixth Conferences on Postal and Delivery Economics: 'The Evolving Structure of Postal and Delivery Industries," held in Helsing~r, Denmark, June 11-14, 1997; and "Emerging Competition in the Postal and Delivery Sectors," held in Montreux, Switzerland, June 17-20, 1998. Leading practitioners, world-wide postal administrations, and the courier industry, as well as a number of regulators, academic economists, and lawyers came together to examine some of the major policy and regulatory issues facing the industry. Issues addressed included international postal policy; the universal service obligation; regUlation; competition, entry, and the role of scale and scope economies; the nature and role of cost analysis in postal service; productivity; interaction of law and economics; and service standards. The conference and the book follow our earlier conferences. In 1990, a confer­ ence was held at Coton House, Rugby, England, July 22-25, 1990, in honor of the one hundred and fiftieth anniversary of the Penny Post and the contributions of Sir Rowland Hill. The ensuing book Competition and Innovation in Postal Services, was published by Kluwer Academic Publishers in 1991. In 1992, Regulation and the Evolving Nature of Postal and Delivery Services: 1992 and Beyond was held at Village PIT, La Londe les Maures, France, on March 18-21, 1992. This conference resulted in Regulation and the Nature ofPostal and Delivery Services, published by Kluwer in 1993. Both conferences were recognized by the European Express Organization with the Hermes Award 1992 at its annual award dinner in Munich on June 22, 1992. The first workshop, The Workshop on Postal and Delivery Economics, was held June 23-26,1993 in Daun, Germany. In 1994, both a Conference in Stockholm, Sweden, May 18-21, 1994, and a workshop, in Hakone, Japan, June 1-4, 1994, took place. These combined to produce the volume Commercialization ofPostal and Delivery Services, published by Kluwer in 1995. A workshop was held in Naantali, Finland, June 7-10, 1995. A Conference
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