Is There a Natural Postal Monopoly?

Abstract

This thesis answers the question "Is there a natural postal monopoly?" The major conclusion is that the production of national postal services by one firm is not the least costly method of organizing the industry. However, there are many local natural postal monopolies and national coordination of flows between most of these local networks is necessary to ensure efficient service. The development of the argument is straightforward. By definition, the costs of a natural monopoly must be lower for the outputs in question than the costs for any two or more firms producing the same products. A review of the economic literature on the theories of natural monopoly shows that there is no simple test for this cost condition. The arguments for and against the existence of a natural postal monopoly rely on simple and incomplete tests. Therefore, the evidence to date is inconclusive. The approach of this thesis is first to define postal services in terms of the network of deliveries that are dem and ed. This leads to an analysis of postal networks based on conclusions drawn from the literature on natural monopolies and from the field of computer science. This approach is necessarily cumbersome but useful for this problem. The networks of postal deliveries that are judged to be most relevant to the natural monopoly question are analyzed. The costs of alternative ways of organizing types of both local and nonlocal networks are estimated. The conclusions are that there are many natural postal monopolies, but not the national one claimed as the justification for the private express statutes. This thesis presents a number of conclusions and recommendations for research and policy. It is not a call for the repeal of the legal postal monopoly, nor is it a justification for maintaining the industry as it is. However, change in this industry is inevitable. It behooves policymakers to consider the issues that are raised by these changes within the context of postal networks.