Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach

Dilyara Bakhtieva and Kamil Kiljański

MPRA Paper from University Library of Munich, Germany

Abstract: In network industries, a Universal Service Obligation (USO) is often seen as a burden on an incumbent, which requires compensation for the net cost of such service provision. This paper estimates the effects of consumer loyalty as an intangible benefit of USO in the postal sector. In doing so, the agent-based modelling (ABM) approach is applied, which makes it possible to model the behaviour of boundedly rational consumers and is thus particularly appropriate for taking into account intangibles considerations. The analysis shows that loyalty is crucial to whether the USO uniform pricing constraint results in loss-making or profitability. Under certain conditions and in the presence of a loyalty parameter, uniform pricing gives a USO provider an advantage, when the size of the rural area is sufficiently big and a disadvantage, if its size is too small. This finding is counterintuitive as USO providers in countries with sparsely populated areas are typically expected to incur a significant net cost of USO.

Keywords: agent-based modelling; liberalisation of the postal markets; postal sector; Universal Service Obligation (USO); USO provider (search for similar items in EconPapers)
JEL-codes: K21 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp, nep-com and nep-reg
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Published in Yearbook of Antitrust and Regulatory Studies 2012.5(7)(2012): pp. 125-141

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48549

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