Economics of Post Office Networks: Strategic Issues and the Impact on Mail Demand

Abstract

Postal market liberalization is a current issue in Switzerland as well as in the European Union. The reserved area has been the traditional means to finance the provision of universal postal services at uniform prices. There is, therefore, a concern that further reductions in the reserved area could undermine the ability of the incumbent postal operator to finance its universal service obligation (USO). Hence, the traditional USO has come under scrutiny in many countries. The two most important cost factors in the postal sector related to the USO are ubiquity of delivery at a uniform price and a network of post offices that is sufficient to enable accessibility to postal services for all citizens. In our paper, we discuss the role of the post office in the marketplace. It not only adds to the incumbent’s cost, but also serves as its important and traditionally established hallmark. Hence, the optimization of the postal outlet network is of significant strategic and political importance. While some post offices may be converted into agencies, franchises and specialized counters for business customers, households beyond the reach of a postal outlet may also be served with postal products by the postman during his mail delivery tour. After an assessment of post office reorganization programs in selected countries in Section 2, we focus in Section 3 on Swiss Post’s optimization program in recent years that aimed at aligning its postal network to emerging competition and changing consumer needs. Whereas a significant fraction of post offices have been closed, the remaining ones now offer a far broader range of products. Further, besides new business customer solutions in collection, a number of specialized outlets for advanced financial services have been created. These measures have seen political and regulatory counteractions which resulted in heavier regulations. In our assessment we briefly present the effects on Swiss Post’s customer satisfaction and channel costs. To identify the impact of post office closures on overall mail volumes, we use time-series techniques with quarterly data between 1980 and 2006. We find – in contrast to variables that capture the effect of the Internet – no significant effect of post office closures on overall mail volumes.