Market Opening, Downstream Access, and Competition in the Market for Mail

Market opening in the postal sector invites competition, but it may also present challenge to financing the universal service obligation (USO) currently in place. USO financing under entry is challenged both by the loss of revenues and scale economies in combination with the affordability constraints on pricing. The incumbent and the entrants would benefit from downstream access as compared to end-to-end competition if the access price is set according to avoided cost. This is due to a better cost allocation between operators. At lower access prices, the incumbent loses margin and therefore incurs losses. Concerning overall welfare implications of downstream access, the simulations reported here yield robustly negative results with bypass. Positive effects can be expected with a worksharing regime and access prices oriented at avoided cost.