Funding the cost of universal service in a liberalized postal sector

Borsenberger, Claire; Cremer, Helmuth; Donder, Philippe De; Joram, Denis; Roy, Bernard

doi:10.4337/9781849803250.00021

Cited by 9 publications

(10 citation statements)

References 8 publications

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“…Both mechanisms are compliant with the Third European Postal Directive. As demonstrated by Borsenberger et al (2010), under uniform taxation schemes, the two taxation bases are not equivalent (this is confirmed by our analysis) and a per-unit tax could lead to a higher surplus.…”

Section: Introductionsupporting

confidence: 60%

The interaction between universal service costing and financing in the postal sector: a calibrated approach

Jaag¹,

Trinkner²

2010

J Regul Econ

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The financing of universal service provision in the postal sector has traditionally relied on granting the universal service provider a reserved area. Together with growing electronic substitution, current liberalization policies promoting competitive entry may put the traditional universal service at risk. Hence, there is an increased interest in knowing the cost of universal service provision. The third EC postal directive proposes a calculation approach to separately determine the net cost of a universal service obligation and to compensate the universal service provider (USP). This paper discusses the interaction between universal service costing and financing and shows that the EC approach may result in distorted results. It also quantifies the effects based on a model calibration with Swiss data. The results show that separate costing and financing leads to a considerable under-compensation of the USP if there is a compensation fund to which every operator contributes. The USP is over-compensated if it is exempt from contributing to the fund (pay or play mechanism). The problem of under-or overcompensation can be resolved by an integrated computation of the net cost that includes the competitive effects of the financing mechanism. Such an integrated approach results in a fair compensation of the USP. AbstractThe financing of universal service provision in the postal sector has traditionally relied on granting the universal service provider a reserved area. Together with growing electronic substitution, current liberalization policies promoting competitive entry may put the traditional universal service at risk. Hence, there is an increased interest in knowing the cost of universal service provision. The third EC postal directive proposes a calculation approach to separately determine the net cost of a universal service obligation and to compensate the universal service provider (USP). This paper discusses the interaction between universal service costing and financing and shows that the EC approach may result in distorted results. It also quantifies the effects based on a model calibration with Swiss data. The results show that separate costing and financing leads to a considerable under-compensation of the USP if there is a compensation fund to which every operator contributes. The USP is over-compensated if it is exempt from contributing to the fund (pay or play mechanism). The problem of under-or overcompensation can be resolved by an integrated computation of the net cost that includes the competitive effects of the financing mechanism. Such an integrated approach results in a fair compensation of the USP.

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Section: Introductionsupporting

confidence: 60%

The interaction between universal service costing and financing in the postal sector: a calibrated approach

Jaag¹,

Trinkner²

2010

J Regul Econ

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“…Boldron et al (2009) argue that the effective cost/burden of USO is endogenous to regulation and funding mechanisms. Similar points are raised in Borsenberger et al (2010) and in who discuss the appropriate tax base for a sharing mechanism and the competitive impact of various cost sharing and compensation mechanisms on the competitive equilibrium, respectively. Jaag (2011a) discusses the importance of a thorough definition of the counterfactual scenario 4 See Panzar (2000) and Cremer et al (2000).…”

Section: Financing Of Universal Service Obligationsmentioning

confidence: 87%

Price Regulation and the Financing of Universal Services in Network Industries

Jaag¹

2013

Review of Law &Amp; Economics

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This article explores the complementary roles of price regulation and universal service regulation in network industries. It analyzes compensation for the universal service provider (USP) by public finances and a fund to which operators contribute. As long as the USP enjoys market power, price regulation may serve as a means to finance universal services. This implies allowing for price increases to compensate for the net cost of the universal service obligation. It releases competing operators or the general government budget from contributing to its financing but results in distorted pricing and reduced overall welfare due to inefficient entry. The analysis shows that current practices of costing and financing universal services may result in unintended market distortions. The article quantifies these effects and demonstrates how such distortions can be avoided.

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“…In this paper, we consider a universal service fund that has the following features: first, the money collected by the fund is integrally transferred to the universal service provider. Second, the fund is financed by a uniform tax paid by all market participants and third, the tax rate is set at a level that guarantees a nil profit for the incumbent inclusive of the tax proceeds (as in Borsenberger et al, 2010). All these assumptions imply that the tax does not modify the incumbent's behavior since any amount it pays to the fund is integrally paid back as compensation for the universal service.…”

Section: The Universal Service Fundmentioning

confidence: 99%

“…The choice of tax instrument and tax level has an impact on market prices, profits, the extent of competition and welfare (Anderson et al, 2001, Choné et al, 2002, Borsenberger et al, 2010, Jaag and Trinkner, 2010. In this paper, we compare a series of tax instruments including an output tax, a revenue tax, an entry fee, a tax on covered routes and a pay-or-play.…”

mentioning

confidence: 99%

“…Anderson et al (2001) show that unit taxation can be more efficient than ad-valorem taxation under Bertrand competition with differentiated products when the aggregate demand is sufficiently inelastic and firms produce at different costs, two assumptions that we made in this paper. In a related paper, Borsenberger et al (2010) study the issue of the appropriate tax base. They compare ad-valorem and output taxes and find that the latter dominates the former when the tax rate is uniform (applied equally to all products and operators).…”

mentioning

confidence: 99%

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Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All

Gautier¹,

Paolini²

2011

Review of Network Economics

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In the postal sector, the financial burden of the universal service depends on its content, the postal market characteristics and the country's geographical configuration. These three groups of factors affect both the direct cost of providing the service and the extent of competition on the market. In this paper, we consider countries with different geographical characteristics and we show that the choice of an appropriate mechanism to share the burden of universal service between market participants depends on the country configuration. Thus, for universal service financing, one size does not fit all.

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Funding the cost of universal service in a liberalized postal sector

Cited by 9 publications

References 8 publications

The interaction between universal service costing and financing in the postal sector: a calibrated approach

The interaction between universal service costing and financing in the postal sector: a calibrated approach

Price Regulation and the Financing of Universal Services in Network Industries

Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All

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