Cheaper Netflix 4
Do you own a home? If you do, you may be surprised to learn that you don’t own all of it.* Outside your home is a box, which you own, but inside the box there is space, which you don’t—that space is owned by the United States Postal Service. Reflect for a moment on how bizarre this is. This strange legal situation is the source of the Postal Service’s monopoly on first-class and standard (third-class) mail. I’m sure that FedEx would love to deliver your letters, but US law forbids it.
*If you don’t own a home, put yourself in the place of your building’s owner.
Fortunately, the simplicity of the USPS’s monopoly suggests a way to break it with the stroke of a pen. All it would take is a tiny change in the law: henceforth, property owners own the space inside their mailboxes. This would free homeowners up to make contracts with Federal Express, UPS, and any of a large number of current and potential competitors to the USPS. It would put people in control of their mail.
What does this matter, when it only costs 37¢ 39¢
to mail a letter? Historically, black-market postal services typically
undercut USPS prices by at least a factor of 2–3. According their
website,
the USPS takes in approximately $70 billion in annual revenue, so opening the
postal market to competition could save consumers $35–$45 billion
a year—hardly an amount to sneeze at. Not only would it cost you less to
mail your Christmas cards, you can bet your Netflix
would get cheaper, too.
In addition to these obvious savings, breaking the USPS monopoly would expose a hidden cost to high postage rates, one which makes the $35–$45 billion estimate conservative and even a little misleading: current prices may very well prevent entirely new businesses from forming. A price factor of 2–3 in the other direction—$1.20, say, for a first-class letter—could very well wipe out operations such as Netflix. Who knows what sorts of innovative services might become feasible if you could mail a letter for 13¢?
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I’m not sure I agree with this thinking. No doubt there are large inefficiencies in the USPS and many other imperfections but on the other hand they go everywhere for the same prices, subsidize residential mail with revenue from all those circulars we mostly toss without reading and stay open late before Christmas and April 15. Balkanizing the volume will at the least significantly lower the network effect, if not destroy it. Email and other online systems have already reduced the need for most individuals to send postal mail–online banking alone has shrunk my mailing to about once a month.
So without strong evidence that removing the USPS monopoly I would oppose this change. Breaking up the phone company, for a comparison, has hardly delivered the promised benefits for local service and yesterday’s announced deal for ATT(!) to buy BellSouth essentially means that there will only be two main RBOCs.
Going everywhere for the same price may be a bug, and it certainly isn’t a feature. It only works if that happens to be the right pricing model; otherwise, there’s a waste of resources from an incorrect price. (In California water is subsidized to the point where it’s “economical” to grow cotton in the San Joaquin Valley.) Sending lots of letters to rural addresses may just be an expensive way to get stuff there; the price ought to reflect that.
Subsidizing rural mail has essentially always been part of the rationale for the postal monopoly, but as far as I know UPS and FedEx deliver to rural addresses. My understanding is that black-market mail services also delivered to most or all addresses. Bear in mind that for years the USPS claimed it needed its monopoly to “subsidize” the delivery of parcels, right up until UPS and FedEx blew away that argument by making a healthy profit in exactly that market niche without a subsidy.
In any case, a price-control subsidy is a particularly inefficient way of dealing with inequality. If there were really legions of rural poor without mail access, it would be far better to allow the price to reach its free-market equilibrium and then give direct subsidies (i.e., money). I suspect that the prices would be so low, though, that such subsidies would be unnecessary.
The phone company argument misses the key fact that it was the AT&T monopoly on long-distance calls that got broken up; local markets were still left with monopoly Baby Bells. (In fact, now that SBC has bought it, AT&T has been eaten by one of its children.) If my recollection of phone bills from my youth is correct, long-distance rates did plunge.
P.S. Thanks for leaving my blog’s first comment!
I’ll offer, just by way of devil’s advocacy, a question: are there efficiency benefits to a monopoly in this case, and if so what would be the effect of removing them?
With a unified mail service, a postal carrier in a suburban neighborhood can park a vehicle at one end of a block, grab a presorted pack of mail, and walk the loop of that block once, delivering to each destination on that block.
Suppose instead ten mail services, each delivering to 10% of the destinations in that neigborhood. With a delivery address density of only 10%, that carrier would face the choice of either “wasting” some large percentage of the walking distance or driving to each household individually.
Is it possible that the massive increase in transportation waste could offset or exceed the efficiency gains from competition?
As a supporting point, observe that overnight services from USPS are significantly less expensive (20%-25% less) than those from competing commercial carriers; my suspicion is that this effect is because USPS leverages an existing distribution network that already visits every address once per day. Fedex and other competitors have the overhead of driving a truck individually to each address, and must spend on the billions of “lost” miles in between those addresses each day.
A point on the one-price-to-everywhere issue: my suspicion is that in this case it actually makes economic sense. If the prices varied per location or per distance, there would be an enormous increase of complexity for both the service and its consumers. Before modern IT, it simply wouldn’t have been a conceivable option. Imagine the cost of staffing the call centers necessary to instruct folks on the amount of postage necessary for their letter. Then add the cost of the staff who must verify that each letter has the correct postage for its destination, looking every one up in a table instead of quickly checking that - say - $23c was on the envelope. (circa 1985). Even today, the machinery for evaluating the postage and the webservers necessary for half a billion daily lookups of price tables by consumers would be very expensive - and the complexity might simply frustrate many consumers away from using the service at all. Variable pricing is a useful tool to businesses - but only when it actually increases net income. With something as low-cost, high-volume as the mail service, I doubt it would be worthwhile, though we may be getting closer to that day.
I would suggest/consider a slightly different change: owners may personally permit or contract any number of carriers to deliver to their mailbox, but they may not forbid the USPS from doing so.
Or perhaps even simply that a correctly-dimensioned mailbox, installed by the homeowner, is an implicit grant of permission for delivery by any licensed postal corporation, of which USPS would be only one.
I like the idea of competition, what I am trying to avoid with this suggestion is the potential logistical nightmare (read: expensive hassle) caused if each homeowner signs independent contracts for access to that owner’s mailbox and legally excludes the USPS or other delivery corporation. Then, senders would be sending letters not necessarily knowing which service to use, and services would need to invest time, equipment, and labor into evaluating every letter as to whether or not they were contracted with the destination. The number of returned letters and consequent expense would likely be dramatically huge in that circumstance.