Global coordination vs unilateralism
Global coordination vs unilateralism
The postal and delivery market in Europe is growing and has high potential for growth. In 2016, postal and delivery market amounted to a total € 90 billion in the EU, EEA & CH area. This equals to 0,55% of the total GDP.
However, two opposing dynamics in the letter and parcel delivery markets underpin fundamental challenges for all stakeholders.
On the one hand, declining letter volumes create pressure for postal operators to increase prices of universal services and reduce fixed costs, e.g. by closing down post offices. It also creates pressure for policymakers to ensure financial sustainability and affordability of the USO.
On the other hand, growing e-commerce creates many opportunities as well as challenges for the industry to develop distribution networks centered around nationwide parcel delivery. For policymakers, we observe a mounting pressure to adapt regulations to changing user needs, technologies and business models, as well as address financial distortions caused by the UPU terminal dues system.
These are some of the findings of our recent study prepared for the European Commission, Main developments in the postal sector, which reviews the postal sector EU-wide over the last five years.
Main conclusions of our study
Multilateral agreements serve a fundamental purpose of ensuring coordination as an alternative to complex webs of contractual agreements, which would carry costs and inefficiencies.
Several branches of economic theory have analysed the conditions for multilateral arrangements to yield a better global social welfare outcome than a scenario led only by unilateral action and bilateral agreements.
Contract theory identifies several conditions (complexity, long-term nature of interactions, etc) under which governance structures can limit transaction costs and lead to better overall outcomes than direct negotiations.
Game theory identifies a double-marginalisation problem leading to excessive price and insufficient quality in bilateral price setting where there is market power; besides, bilateral negotiations outcomes depend on outside options available, which diverge significantly globally.
International trade economics finds that – absent multilateral coordination – “spaghetti bowl” and “hub&spoke” effects, together with high costs of negotiating FDAs, lead to trade diversion effects detrimental to global welfare.
Digital substitution of addressed mail implies that the postal industry has to face up to a “survival” challenge, while delivery of e-commerce products such as small packets is a key opportunity.
The study is commissioned by Le Groupe La Poste.
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