Quality and Price Differentiation in Postal Service

Abstract

Postal service faces many of the major problems traditionally examined at length in the public utility literature. The peak load problem is a case in point. As demonstrated in Crew, Kleindorfer and Smith (1990) and Crew and Kleindorfer (1990), postal service provides an example of an industry with a peak load problem arising from daily and hourly fluctuations of mail processing activities and very limited deferrability of these activities in meeting quality of service requirements. Thus, along with the peak load problem, postal service faces problems of quality and reliability, similar to public utilities. However, unlike the literature on traditional public utilities, there has been little discussion of peak load, quality and reliability problems in the literature on the economics of postal service. This paper, by providing a review of the issues and some basic model building, aims to begin a dialogue on the importance of quality and reliability issues in postal service.