Competing In Competitive Markets

TNT Post is the privately owned provider of universal mail service in the Netherland.  As such it operates under a corporate structure similar to investor-owned public utilities in the U.S.   From a competitive standpoint, TNT Post is similar to the land-line operations of Verizon, ATT, Quest, and numerous smaller firms that are dominant in their traditional market but face competition from telephone services offered by cable companies, wireless services, including sister wireless divisions, and voice over internet services like Skype and Vonage.  

Just like land line companies, TNT Post expects demand to decline.  Its just released annual report provides the following information on volume change in 2010 and in upcoming years.  As a consequence of the combined market trends [i.e., competition and electronic diversion], the addressed postal volume decline in 2010 was 9%. For 2011, Mail estimates the decline of its addressed postal volumes to be around 8% to 10%. In the years thereafter, Mail estimates its annual volume decline to be 6% on average. 

TNT does have options to grow its business that the United States Postal Service does not because it is in in the private sector and does not have legal restrictions from offering "non-postal" services.  The following figure illustrates TNT's strategy and a number of these options.  

Choosing to allow the U. S. Postal Service to expand its range of services is a significant policy question that requires Congressional action.  

The argument for allowing the Postal Service offering similar services come from the economic theory of the firm that describes the limits in both efficiency and service quality of contacting out parts of a manufacturing process or service to multiple firms.   The theory of the firm explains why with limited exceptions most movements of physical objects from rail cars to less-than-truckload freight to express letters are marketed and transported by a single firm and these firms have aggressively expanded into logistics and trade-finance services that customers often require in addition to the transportation.  It also explains why most posts operating in the G-20 offer services similar to what TNT Post, while at the same time many now or will soon compete with firms offering upstream (i.e. collection, sortation and transporation) and end-to end mail delievery services.

The argument against allowing the Postal Service, operating as a public entitiy, offering similar services are twofold.  First, allowing the Postal Servcie to offer these service would put it in direct competition with private sector and government provision of services are perceived to be required only if the private sector fails to provide the service.   Second, by allowing the Postal Service to compete with private sector firms, its delivery service would give it an unfair advantage over firms currently competing in the market.

Even if the Postal Service is privatized, there is an argument against allowing it to compete with the private sector.  This argument focuses on the competitive advantage of a private sector firm offering the delivery service has in the market over other competitors.   In many ways these arguments are similar to those favoring net-neutrality as well as concerns of competitors to NBC that were raised prior to the merger of NBC and Comcast.

In weighing these arguments, as well as arguments on the full range of postal policy issues, Congress needs to focus on the economic impact of the policy choice. 

• To the extent that mail is used to consummate transactions including the sending of bills and payments, what option allows those transactions to go smoothly at the lowest cost to the buyer and seller?
• To the extent that mail is used to advertise products and services, what option gives advertisers the most efficient advertising media possible which allows them to grow their business and create jobs?
• To the extent that the Postal Service is a critical part of a low-cost transportation network that allows e-commerce companies to grow, which option best ensures that the sender of parcels or receiver of returns will have cost-efficient delivery network that they need that will allow their businesses to grow and create jobs?