Competition and Innovation in Postal Services.

• Author: Hampton, Gena F.

The 13 chapters in this book represent the work of professional, academic, and governmental economists. It is an impressive exchange of views between "the practical thinkers and the thinking practitioners." The discussants, both international and United States citizens, include seven economists working directly for the British Post Office, the United States Postal Service, or an International Post Office. The book results from a conference held at Coton House, the Post Office Management College, in Great Britain, July 22-25, 1990. The papers discuss the condition of entry, natural monopoly, regulation, privatization, and the effects of monopoly on labor unions. The consensus is to allow competition into the Postal Service market. Counter arguments are presented whether a natural monopoly exists and the effects of subsidization on consumer surplus. There is considerable agreement that productivity can and should be improved; money wages of postal workers are inordinately high as compared with similarly skilled free market workers; prices generally do not reflect costs; political realities must be recognized when discussing economic theories; and some postal services will most likely not be attractive to entrants (rural delivery) and therefore some transitional program is necessary if delivery becomes competitive. The papers have a decidedly international slant, discussing the postal arrangements in Australia, Canada, Germany, Great Britain, New Zealand, and the United States. Rather than examine individual proposals, some key issues of the anthology are reviewed.

The major issues align themselves into four broad categories. These are the relationship between price and cost (the appropriateness of uniform pricing), the political as opposed to the economic realities of the governmental monopoly, the need for the Post Offices to innovate and allow competition in at least some areas of service, and the welfare benefits from the continuing monopoly status quo compared to its removal.

The problems caused by price being set above cost in many postal services are fundamental. Several papers defend cross subsidization on the basis of welfare benefits. Uniform pricing began with Sir Rowland Hill in Great Britain in the mid-1800s. Hill justified it as a consequence of uniformity of cost, not a goal in itself In the United States, the historical motive behind uniform pricing was to discourage isolation of the frontier settlers and therefore hold the...