To Be or Not to Be a Monopoly

In responding to a question from Sen. Tom Carper about price inelasticity of postal rates shown in a study by the office of the Postal Inspector General, PRC Chairman Ruth Goldway responded with a terse summation of the challenge facing Congress in crafting postal reform. We present it in its entirety.

“This matter can be discussed and debated by many people. There is still a strong monopoly when it comes to letter mail and market products that the Postal service has a dominant position in. if you’re a nonprofit and you want to communicate with a paper product, your option is only one, and that’s the Postal Service. So studies that determine what the price elasticity and inelasticity in the future will be–when we’ve been operating in a monopoly system for the last 100 years– are not necessarily reliable. And it seems to us that the Postal Service can’t have it both ways. It can’t say that this a competitive market and, if you let us have a competition without any regulation, we won’t raise prices more than we need to because there’s competition and we’ll keep it down. [Then} on the other hand [say] there’s price inelasticity and its okay if we raise prices because we’ll keep our volumes up and there’s no concern about that.

“You can’t present both arguments. So it seems to me that if you want to eliminate the monopoly and allow prices to fluctuate and [find] their sweet spot, as we’ve done with the competitive products that the Postal Service has done, where they’ve raised prices 5% a year, then you do that. But if you ask first class mailers, if you ask nonprofits, whether they can manage with a 5% price increase, you’re going to get responses that say they simply can’t do it.  And that in fact you will lose so much volume that you won’t get the revenue that the Postal Service thinks it’s going to get from that mail.

“We believe that the price cap regime has created the stability and transparency and accountability that’s given mailers some assurance in a time of real transition and have given the nation’s users some sense of trust in the mail which is very important to [the USPS’s] brand and their future.”

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