Competition and the Coverage of Price Controls in the Postal Sector

Paul Dudley, Helen Jenkins, Leonardo Mautino and Sophie Richard
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Paul Dudley: Royal Mail Group
Helen Jenkins: Oxera
Leonardo Mautino: Oxera
Sophie Richard: Royal Mail Group

Chapter Chapter 6 in Regulatory and Economic Challenges in the Postal and Delivery Sector, 2005, pp 121-138 from Springer

Abstract: 6. Conclusion This paper has reviewed the conditions necessary for services to be removed from price controls for the postal sector, consistent with the present regulatory environment in the UK. In particular, it has developed the approach used by UK regulators outside of the postal sector into one that places more emphasis on testing whether a market is likely to be prospectively competitive within the price-control period. First, the assumptions used by the USP in its forecasts for the price-control period can be assessed to see if they are consistent with there being no significant market power for any service within that period (Test A). In particular, the paper illustrates with an example of magazine mail how the critical demand elasticity values could be derived from the USP business plan for comparison with actual values in assessing whether Test A is satisfied. Second, the observations of the market can be used to confirm whether the USP’s forecasts contained in the business plan are indeed reasonable and compatible with the developments of the market (Test B). The removal of services then requires costs to be allocated between competitive and non-competitive markets to enable the coverage of the main control to shrink over time as the competitive market develops.

Date: 2005
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DOI: 10.1007/0-387-23637-6_6

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