Pricing Strategies in Regulated Markets

Abstract

In a context of downward trends in mail volumes, recent postal reforms have allowed postal operators to build tariffs with a more balanced approach between cost based and demand based pricing. In the United States, some increased pricing flexibility was granted to the USPS in 2006 with the adoption of the Postal Accountability and Enhancement Act. In Europe, the adoption of the 2008 postal directive which liberalizes the postal sector confirmed the application of the subsidiarity principle, according to which European Union member states are free to determine the scope of regulated services, and consequently the degree of pricing flexibility for postal operators. In line with these regulatory changes, postal operators practice has been characterized by more innovations, both in the United States and in Europe. Analyzing recent product launch and commercial policies, we identify a link between demand based pricing and legislations which set up liberalization and a more flexible approach of cost orientation principles. Through increased market segmentation, postal operators have developed differentiated pricing in relation to specific products and specific customers. The paper provides insights from postal operators' strategies and interactions with regulatory authorities concerning price, in a context of growing pressure from various stakeholders on postal operators' marketing strategies.