Presentación del Informe a la Autoridad Sectorial Competente

As discussed in Section 2.1, SPDCEs elicit the WTP for elements of the postal service based on a representation of utility U that users derive from postal services. It is therefore important to understand the utility consumers gain from postal services in economic terms.

In the postal sector, it is necessary to distinguish:

- item-specific utility that is proportional to the quantity of consumed postal services from a household (or business) as sender qS and/or recipient qR, and - non-item specific utility that consumer derive from positive external effects E of

the postal network.

Utility from postal services is hence likely to be of the following form (for an early outline cf. Willig, 1979):

U(qS, qR, E).

In order to understand the underlying needs for postal services, we summarise the relevant elements of these three components based on the overview provided in Jaag and Trinkner (2011b).

Item-specific utility: transaction costs

As elaborated in Section 2.1, a key role of postal services is the reduction of transaction costs in the delivery of items of correspondence and goods.

In economic terms, senders and receivers derive utility from every item sent or received, in that postal services are utilised by a sender as long as the surplus from consumption is

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positive: postage prices plus the opportunity cost of using the postal network are lower than the utility of sending mail and the total cost of delivering mail on one’s own. On the recipient side, the utility of receiving mail must exceed the opportunity cost of emptying the mailbox (assuming that postal operators do not charge the recipient).

Correspondingly, the basic need on the sender side may be good accessibility of postal collection facilities to reduce the opportunity cost of using the postal network (post offices, letter drops, etc.) and a reliable, affordable service at reasonable quality that connects recipients in such a way that receivers will indeed receive the items sent within a reasonable time limit. Lower prices will translate directly into higher consumer surplus. Similarly, recipients may desire good accessibility of the place of delivery in order to be willing to empty the mailbox, and a reliable, affordable service, in order to choose to order goods online.

According to Crew and Kleindorfer (1998), uniform pricing for low-cost items may be understood in the context of transaction costs, as uniform pricing reduces uncertainty and time for senders. Moreover, small senders might have a preference for uniform prices as such an obligation would prevent the postal service from exploiting its bargaining power and imposing a rate structure with high prices for small customers and low prices for business customers.6

Utility based on the network: externalities

Utility based on the postal network is a more subtle source of utility. In the postal sector, it arises in the context of external effects.

External effects are present when one economic agent’s action affects the action of another agent in the economy. One agent’s action can have a positive or negative externality on other agents.

In particular, the two-sided market approach7 _{is of high relevance in the postal market.}

Many network industries, such as telecommunications, cable networks and postal markets can be understood as being platforms linking two groups of users: senders and recipients. The broader the one side of the platform, the greater the utility on the other side of the platform. Hence, the platform provides utility for senders and recipients independent of that provided by the service.

Postal markets are generally viewed as two-sided (e.g. Panzar, 2006; Cremer et al., 2008; Jaag and Trinkner, 2008). Hence, postal operators are to be considered as platforms (intermediaries) that link senders and recipients, as well as sellers or businesses and buyers

6 _{As a corollary, uniform pricing can be seen as a means for redistribution. Following Cremer et al. (2008),} uniform pricing obligations can be seen as a second best redistributive pricing policy to achieve the desired wealth distribution. Uniform pricing has at least two redistributive effects, from business customers (low cost, high bargaining power) to private customers (high cost, low bargaining power) and from densely populated regions to remote regions with high-cost delivery. Crew and Kleindorfer (2002) see the redistribution motive as a major driver of deregulation in network industries (deregulation as a means to abolish uniform pricing). 7 _{Where lump sum price redistributions between market sides affect overall demand, markets are said to be} two- or multi-sided (Rochet and Tirole, 2006). These pricing implications are crucial, and often one market side remains heavily subsidised.

or clients. The larger the recipient base, the greater are the business opportunities on the sender side and the more attractive are letters as a communication platform. Conversely, recipients may be more likely to empty their mailbox if they expect a large sender base. Hence, senders may have an interest in a dense delivery network with good accessibility for recipients. Recipients in turn might desire good accessibility for competitive postal services for senders. Note that in contrast to the volume-dependent utility discussed above, these preferences relate to the other side of the market.

Cremer et al. (2008) show in their two-sided market model that a profit maximising postal operator will chose a suboptimal low quality in delivery (coverage or reduced frequency of service) leading to a decrease in demand.8 _{In anticipation of the postal network profit}

maximising behaviour, consumers may have a preference for full coverage and quality standards.

Jaag and Trinkner (2008) discuss the implication of the two-sidedness of the postal market on pricing and underline the importance to subsidise the recipient side of the market. Their results support the “sender pays principle” of today’s European postal markets with its free home delivery as opposed to the “receiver pays principle”, which was at the origin of most postal services. Up to the reform of Rowland Hill in the UK in 1840, receivers had to pay a fee to receive a letter. The great success of the reform quickly inspired postal services across Europe to follow the UK example, and with time new product categories such as direct mail emerged. Therefore, senders might prefer to pay higher postage ceteris paribus in order to ensure free home delivery for their recipients.9

The notion of two-sided markets may lead to a preference of consumers toward uniform pricing, as illustrated by an example introduced by Jaag and Trinkner (2008). Postage is usually charged to the senders. However, the charges are often passed on to the recipients, e.g. by banks or distance mail order companies (“pass-through”). If these pass on single piece prices instead of wholesale prices collected by the postal operators (which is increasingly the case), the price signals in the market (single-piece price) are higher than the effective (wholesale) prices charged by the platform. Under uniform pricing, there is no difference, consumers are better off, and overall demand will be higher and closer to the socially optimal level. Consequently, the reform of Rowland Hill complemented the sender pays principle with the introduction of uniform pricing (“Uniform Penny Post”).

8 _{The model assumes that senders’ surplus depends on the number of households that can be reached at a} certain level of service. When a call externality is introduced into the model (increasing utility of addressee in number of mail items received), the results are reinforced.

9 _{Cf. Anson and Toledano (2008) for a discussion of effects in African countries where delivery is not free of} charge for recipients. As Jaag and Trinkner (2008) summarise, recipient pricing is likely to have a strongly negative impact on direct mail. Moreover, market research by Friedli et al. (2006) indicates that up to 35% of customers who prefer a free P.O. box delivery over costly home delivery would not empty their P.O. box any more.

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In the context of externality a more opaque view is that the postal network presents the character of a public good, independently of the services offered to the consumers (e.g. social cohesion, functioning of democracy, ethical issues). Cremer et al. (2008) argue that such a network can be understood as producing “externalities that are non-trivial in nature”. Hence special features of postal networks such as traditional post offices may be seen as a mechanism to provide the public good (even if the mere postal services were private goods). Public goods might therefore cause a preference of consumers for postal infrastructures per se, e.g. a traditional post office in rural areas.