Abstract
Diversion ratios indicate the fraction of demand that is “diverted” to another company. By analogy, we define retention ratios as the fraction of demand of a particular store or product that is “retained” within a company. In case of a post office closure, retention ratios express how much of the sales in the closed post offices are retained in the remaining post offices. Both retention ratios and diversion ratios are, although defined differently, closely linked to elasticity of demand relative to changes in prices and/or quality. Despite its considerable importance, there is a clear lack of research on diversion and retention ratios in the postal sector. In our paper, we contribute to the literature in three ways. We provide a review of the relevant literature on diversion and retention ratios for post office and retail networks as well as in merger cases. We identify existing estimates and relevant factors that drive the results. We then qualitatively limit possible ranges of retention ratios of post office closures. We validate our results by comparing empirical volume effects in Swiss Post’s restructured retail network between 2013 and 2019.
We thank the editor Tim Brennan for his very useful suggestions, in particular using the term “retention ratio” and how one might define it.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
The diversion ratio from product 1 to product 2 is the cross-price elasticity of product 2 (with respect to the price of product 1) divided by the own price elasticity of product 1 multiplied by the ratio of unit sales of product 2 divided by the unit sales of product 1 (see also Conlon & Mortimer, 2018).
- 2.
Rough estimate based on survey in European Commission, Case M.5141: KLM/MARTINAIR.
- 3.
\( Retention\ Ratio=1-\varepsilon \ast \frac{\Delta P}{P} \).
- 4.
Based on data provided by Swiss Post.
- 5.
“Zahlungsauftrag per Brief”, in short ZAG.
- 6.
Based on data provided by PostFinance AG.
- 7.
Based on data provided by Liechtensteinische Post.
References
Ailawadi, K. L., Pauwels, K., & Steenkamp, J. B. E. (2008). Private-label use and store loyalty. Journal of Marketing, 72(6), 19–30.
Berry, S. T. (1994). Estimating discrete-choice models of product differentiation. The Rand Journal of Economics, 25(2), 242–262.
Buser, M., Jaag, C., & Trinkner, U. (2008). Economics of post office networks: Strategic issues and the impact on mail demand. In M. A. Crew, R. A. Kleindorfer, & J. I. Campbell (Eds.), Handbook of worldwide postal reform (pp. 80–97). Edward Elgar.
Carslake, I., Houpis, G., & Monaghan, E. (2018). Brand, product differentiation and postal market outcomes. In P. L. Parcu, T. Brennan, & G. Victor (Eds.), New business and regulatory strategies in the postal sector (pp. 219–233). Springer.
Cheung, L. (2016). Antitrust market definition and the sensitivity of the diversion ratio. Working papers 2016-02. Auckland University of Technology, Department of Economics.
Conlon, C. T., & Mortimer, J. H. (2013). An experimental approach to merger evaluation. Working paper no. w19703. National Bureau of Economic Research.
Conlon, C. T., & Mortimer, J. H. (2018). Empirical Properties of Diversion Ratios. Working paper no. 24816. National Bureau of Economic Research.
Edwards, K. (2013). Estimating diversion ratios: Some thoughts on customer survey design. In P. Lowe & M. Marquis (Eds.), European competition law annual 2010: Merger control in European and global perspective (pp. 31–42). Hart Publishing.
Ellickson, P. B., Grieco, P. L., & Khvastunov, O. (2020). Measuring competition in spatial retail. The Rand Journal of Economics, 51(1), 242–262.
Haans, H., & Gijsbrechts, E. (2010). Sales drops from closing shops: Assessing the impact of store outlet closures on retail chain revenue. Journal of Marketing Research, 47(6), 1025–1040.
Hausman, J., Moresi, S., & Rainey, M. (2011). Unilateral effects of mergers with general linear demand. Economics Letters, 111(2), 119–121.
Rossi, C., Whitehouse, R., & Moore, A. (2019). Estimating diversion ratios in hospital mergers. Journal of Competition Law & Economics, 15(1), 639–663.
Shapiro, C. (1995). Mergers with differentiated products. Antitrust, 10(2), 23–30.
Singh, V. P., Hansen, K. T., & Blattberg, R. C. (2010). Market entry and consumer behavior: An investigation of a Wal-Mart supercenter. In G. M. Allenby (Ed.), Perspectives on promotion and database marketing: The collected works of Robert C Blattberg (pp. 297–316). World Scientific Publishing Company.
Trinkner, U., & Grossmann, M. (2006). Forecasting Swiss mail demand. In M. A. Crew & P. R. Kleindorfer (Eds.), Progress toward liberalization of the postal and delivery sector (pp. 267–280). Springer.
Valletti, T., & Zenger, H. (2021). Mergers with differentiated products: Where do we stand? Review of Industrial Organization, 58, 179–212.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Hafner, M., Iunius, L., Trinkner, U. (2023). Retention Ratios in Retail Networks and Their Application to Post Offices. In: Parcu, P.L., Brennan, T.J., Glass, V. (eds) The Postal and Delivery Contribution in Hard Times. Topics in Regulatory Economics and Policy. Springer, Cham. https://doi.org/10.1007/978-3-031-11413-7_7
Download citation
DOI: https://doi.org/10.1007/978-3-031-11413-7_7
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-11412-0
Online ISBN: 978-3-031-11413-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)