Governance by mutual benchmarking in postal markets : how state owned enterprises may induce private competitors to observe policy goals

Congress recently has passed the Postal Accountability and Enhancement Act, which leaves most elements of the current postal regulatory framework (postal monopoly, state owned enterprise) unaltered. Similar regulatory frameworks have been established in the U.S. and the European Community. Governments justify intervention in postal markets with merit good considerations. They argue that important policy goals like universal service will not be achieved by competition. However, an economic analysis shows that the current (and new) regulatory regime does not achieve these policy goals in an efficient way. In addition, many universal service elements, in particular the uniform pricing scheme, rest on dubious grounds. There is need for a market model in postal service, which leaves room for efficiency gains while keeping focus on policy goals. In my article, I describe a new concept of public-private competition, according to which governments use state owned enterprises to guard policy goals like universal service in postal markets. This allows relieving private competitors from regulatory burdens. Summarizing the concept, the state owned enterprise will set a minimum service standard in the market, which serves as performance benchmark for private competitors. The benchmark pressures private actors to observe policy goals in postal markets, if they want to keep up with the service standard available from the state owned enterprise (threat of replacement). In the same way, state owned enterprises have to keep up with the performance benchmark of private providers, forcing them to improve efficiency, and to resist political meddling. Changes in the current subsidy scheme will make it possible to extend public-private competition from urban to rural areas, where markets are too small to sustain more than one provider; such extension will further improve the mutual benchmarking process. In contrast to other concepts of public-private competition, the benchmarking process described in this paper does not make use of coercive regulation and leaves the competitive process largely intact.