Abstract
This paper analyzes the nature of and justification for the Universal Service Obligation (USO) and its relationship to the Reserved Area for Postal Service. This is motivated by problems of funding the USO in the face of increasing competition in the postal sector. After reviewing various approaches to defining and funding the USO, we develop a model to consider the optimal scope of both the Reserved Area and the USO. The model assumes an incumbent postal provider and potential entrants. The incumbent is guaranteed a monopoly franchise for services in its Reserved Area R and offers services in a possibly larger set of services U at uniform prices. All services not in R face competition from entrants. We characterize the welfare-optimal scope of R and U subject to a breakeven constraint for the incumbent. Implications for USO policy are discussed in light of the results of the analysis.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Allen, John R. 1997. “Competitor Access To The Postal Pipeline: The New Zealand Experience.” In Crew and Kleindorfer (eds.) 1997.
Baumol, William J., Elizabeth E. Bailey, and Robert D. Willig. 1977. “Weak Invisible Hand Theorems on the Sustainability of Natural Monopoly.” American Economic Review 67:350–65.
Braeutigam, Ronald R., 1979. “Optimal Pricing with Intermodal Competition.” American Economic Review 69 (March): 38–49.
Coase, Ronald H. 1947. “The Economics of Uniform Pricing Systems.” Manchester School Econ. & Soc. Studies 15 (May): 139–56.
Comandini, Vicenzo V. 1995. “The Postal Service in the European Union: Public Monopoly or Competitive Market? A Transactions Cost Approach.” Annals of Public and Cooperative Economics 66(1): 7–29.
Cremer, Helmuth, Marc De Rycke, and André Grimaud. 1997. “Cost and Benefits of Universal Service Obligations in the Postal Sector.” In Crew and Kleindorfer (eds.) 1997.
Crew, Michael A., and Paul R. Kleindorfer. 1992. The Economics of Postal Service. Boston: Kluwer Academic Publishers.
Crew, Michael A., and Paul R. Kleindorfer (eds). 1995. Commercialization of Postal and Delivery Services. Boston: Kluwer Academic Publishers.
Crew, Michael A., and Paul R. Kleindorfer (eds). 1997. Managing Change in the Postal and Delivery Industries. Boston: Kluwer Academic Publishers.
Dobbs, Ian, and Jeanne Golay. 1996. “Universal Service Obligation and Reserved Sector.” In Cost of Universal Service, edited by W. Elsenbast and U. Stumpf. Bad Honnef: WIK.
Economides, Nicholas. 1996. “The Economics of Networks.” International Journal of Industrial Organization 14: 673–699.
Elsenbast, Wolfgang, and Ulrich Stumpf (eds). 1996. Cost of Universal Service. Bad Honnef: WIK.
Gallet, Catherine, and Joëlle Toledano. 1997. “The Cost of the Universal Postal Service in a Competitive Environment: Lessons from Telecommunications.” In Crew and Kleindorfer (eds.) 1997.
Hill, Sir Rowland. 1837. Post Office Reform.
Leskinen, Pekka, and Bengt Palmgren. 1997. “Liberalized Postal Markets: Finnish and Swedish Experiences.” In Crew and Kleindorfer (eds.) 1997.
Owen, Bruce, and Robert D. Willig. 1983. “The Economics of Postal Pricing.” In The Future of Postal Service, edited by Joel Fleischman. Aspen: the Aspen Institute.
Rawnsley, David, and Nomi Lazar. 1997. “Managing the Universal Service Obligation.” Rutgers University Fifth Conference on Postal and Delivery Economics, Helsingør, Denmark, June 11–14.
Stumpf, Ulrich. 1997. “Providing Universal Service in Competitive Postal Markets.” In Crew and Kleindorfer (eds.) 1997.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Crew, M.A., Kleindorfer, P.R. Efficient Entry, Monopoly, and the Universal Service Obligation in Postal Service. Journal of Regulatory Economics 14, 103–126 (1998). https://doi.org/10.1023/A:1008088017364
Issue Date:
DOI: https://doi.org/10.1023/A:1008088017364