Stand-Alone Costs, Ramsey Prices, and Postal Rates

Thomas M Lenard, Monica M Bettendorf and Stephen McGonegal

Journal of Regulatory Economics, 1992, vol. 4, issue 3, 243-62

Abstract: This paper discusses two external benchmarks for assessing the results of the 1990 postal rate proceeding. First, the authors generate stand-alone cost estimates for third-class bulk advertising mail, based on market data from private mail carriers. Second, they derive Ramsey optimal prices for all classes of mail. Private delivery costs for bulk advertising are significantly below the third-class bulk regular rates adopted by the U.S. Postal Rate Commission, indicating that the new third-class rates are well above stand-alone costs for an efficient enterprise. Moreover, the Ramsey price analysis suggests that the rate structure adopted reflects, at least implicitly, considerations other than economic efficiency. Copyright 1992 by Kluwer Academic Publishers

Date: 1992
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