Peak-Load Pricing of Postal Service and Competition

Abstract

As we argued in our earlier paper, the United Kingdom Post Office has a long and distinguished tradition of innovation going back to the reforms of Rowland Hill. On September 16, 1968, the Post Office introduced another major innovation, the two-tier pricing system. Peak-load pricing thus became universal in the Post Office. Without fanfare, in one stroke, peak-load pricing was applied completely to one industry. Despite the many exhortations for peak-load pricing in electricity, telephone, and other industries, in no other industry has peak-load pricing been so extensively applied as in the Post Office.1 While the practical experience of peak-load pricing gained by the Post Office has been considerable, the significance of the two-tier pricing systems has generally been missed in the literature of academic economics. The analysis provided by economists of the peak-load pricing problem in postal service has been limited to testimony by John Panzar (1984) and our recent paper with Marc Smith, (Crew, Kleindorfer, and Smith 1990, C-K-S).