On the Value Added Taxation Status of National Postal Operators

We study the pricing and welfare implications of changing the VAT status of the national postal operator (NPO) from exempt to rated. We build a model where the NPO offers both single-piece and bulk mail to customers, some of them VAT rated, others VAT exempt. We solve for the optimal Ramsey prices under monopoly and under access-based competition for bulk mail. We finally perform numerical simulations in order to determine how prices, volumes and welfare might be affected by the change in the NPO's VAT status, both under monopoly and under access-based competition for bulk mail.