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Welfare And Pricing Of Mail In A Communications Market

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Executive Summary

The authors build a model where a postal incumbent offering single piece, transactional and advertising mail competes with postal entrants and with a firm offering an alternative medium. They solve for the optimal prices under various competition assumptions. They calibrate the model and provide numerical simulations in order to shed light on the impact of these assumptions on volumes and welfare levels. Since there is a minimum mailing level for senders in the bulk mail market, this mail is particularly attractive to the Universal Service Provider (USP) and competing postal entrants, in comparison to individual and smaller mailings of single-piece mail.

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