Peak Loads and Postal Services: Some Implications of Multi-Stage Production

Abstract

While peak-load pricing has a long history both in practice and in the literature (Crew, Fernando, and Kleindorfer 1995), its extension to postal service is much more recent (see Panzar (1984) and Crew, Kleindorfer, and Smith (1990)). Because our 1990 paper was an early extension of peak-load pricing to postal service, it did not incorporate stochastic demand and diverse technology that had become common place in traditional applications of the theory of peak-load pricing. Nor did it reflect all of the important features of the peak-load problem in postal service. Similarly, it did not reflect the changes in postal technology as represented by the automation programs in progress in postal services Finally, it did not recognize the importance of peak loads at all of the several stages of production in postal service, including delivery, a significant cost in postal service. In this paper we begin the process of extending the theory of peak-load pricing in postal service to reflect some of these features. We are especially concerned with the effects of multi-stage production and stochastic demand and with extending the focus of the analysis downstream to include possible implications for peak-load pricing at the delivery stage.