PRC Denies Competitive Status to First Class Parcels

The U.S. Postal Service’s request to move First Class Mail Parcels from the market dominant to the competitive product list was denied yesterday by the Postal Regulatory Commission. The Postal Service had maintained that the product competed in the 2- to 3-day air and ground parcels markets, in which it held market shares of less than 8% each. It further argued that the small business owners that most use the services would not be able to afford market dominant price increases and that it would lose share to competitors.

The USPS’s petition stipulated that it would seek a higher average rate increase for the class if it moved to the competitive category—an average hike of 22%—than it would if it stayed in the market dominant category, where the average rise would be 10%. But competitors UPS and FedEx offer money-back guarantees for their service in the class, while USPS does not.

The public representative required to weigh in on requests considered by the PRC maintained that UPS and FedEx serve a different segment of the market and are not in direct competition with the Postal Service. He concluded that a demonstration of market share does not demonstrate lack of market power and notes that the Postal Service has not provided any evidence about the level of business that will be lost.

GameFly, a Netflix-like service that uses FCM Parcel to mail video games, commented that proposed price increases provide conclusive proof of market dominant status in that USPS holds sufficient power over the market to make above-inflation increases profitable.

In a 3-2 vote, Postal Regulatory Commissioners ruled that the Postal Service failed to demonstrate that it lacked the market power behind FCM Parcels to make the move to the competitive class. The decision said USPS failed to prove that it is “precluded from setting the price…substantially above costs, raising prices significantly, decreasing quality, or decreasing output, without risk of losing a significant level of business to other firms offering similar products.”

A dissenting opinion written by Acting Chairman Robert Taub and Vice Chairman Tony Hammond said that denying FCM Parcels competitive status “conflicts with the reality of the marketplace and will work to the detriment of both the Postal Service and its competitors.”

Taub and Hammond maintained that the competitive nature of the parcel business is obvious even to the casual observer. “Scarcely anyone who sends a parcel in this country is unaware that there are two major carriers besides the Postal Service ready to deliver it,” they wrote in a joint dissent. 

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