Competition and the Coverage of Price Controls in the Postal Sector

6. Conclusion

This paper has reviewed the conditions necessary for services to be removed from price controls for the postal sector, consistent with the present regulatory environment in the UK. In particular, it has developed the approach used by UK regulators outside of the postal sector into one that places more emphasis on testing whether a market is likely to be prospectively competitive within the price-control period. First, the assumptions used by the USP in its forecasts for the price-control period can be assessed to see if they are consistent with there being no significant market power for any service within that period (Test A). In particular, the paper illustrates with an example of magazine mail how the critical demand elasticity values could be derived from the USP business plan for comparison with actual values in assessing whether Test A is satisfied. Second, the observations of the market can be used to confirm whether the USP’s forecasts contained in the business plan are indeed reasonable and compatible with the developments of the market (Test B). The removal of services then requires costs to be allocated between competitive and non-competitive markets to enable the coverage of the main control to shrink over time as the competitive market develops.

The analysis contained in this paper reflects the views of the authors. These views are not necessarily those of Oxera and the Royal Mail Group.