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Competition in postal services

This entry was added to on 4 January 2005.
Full blog table of contents available at Contents | viewpoint: Franck.

Postcomm, the regulator of postal services in the UK, has proposed "a faster route to ending Royal Mail's monopoly", with "full market opening" on 1 January 2006.

At the same time, the regulator proposes to "set a framework for Royal Mail's price and service quality control from April 2006", which rewards growth, operating efficiency and quality of service.

Is it sensible to try to have both competition and price controls ("incentive regulation") over the same services at the same time?

The case for a hybrid approach

The basic case for Postcomm's proposed hybrid approach is simple enough, and rests on two premises:

This article questions whether the hybrid approach mapped out by Postcomm is a good way of gaining the benefits of competition without jeopardising the interests of consumers.

The case against a hybrid approach: economics

There are some theoretical reasons to doubt the wisdom of the case summarised above for a hybrid approach involving both ongoing incentive regulation and the promotion of competition within the same relevant markets for postal services.

The case against a hybrid approach: experience

I am not sufficiently familiar with the situation in the postal sector in Sweden or New Zealand to comment on whether the experience of liberalisation in these countries supports the economic case against a hybrid "competition and regulation" approach to postal sector reform. But I have seen little to suggest that these examples are seen as clear successes.

Besides international comparisons, there is also relevant experience from other sectors which share some of the economic features of postal services, and lessons might be drawn (with caution, as indeed should be the case for any lessons derived from international comparisons).

UK approaches to regulatory reform in "network" industries might be characterised as follows:

All these models have their successes and problems, and rely on specific features of their industries. I would argue that:

So it's horses for courses (of course), and the question must be which of these arrangements (or hybrid thereof) seems most suitable to the particular circumstances of postal services in the UK. Here are my guesses of how the different approaches would fare for UK post:

No obvious winner there I'm afraid!


Entry added by Franck Latrémolière on 4 January 2005

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Last changed by Franck at 8:22 PM on Saturday 2 July 2005.

Reference for this page:
Reckon Open "Competition in postal services | viewpoint: Franck" 2005-07-02T20:22:09