Tyler Cowen

How good is the post office really?

Blog Post created by Tyler Cowen on Dec 14, 2015

Originally posted on August 8, 2009.

 

A number of progressive bloggers have been making the point that most Americans approve of the postal service, or that they personally have had good experiences there.  They then seem to be concluding that the quasi-monopoly arrangement in that sector is likely efficient and the example of the post office should not be cited as evidence for government failure. I do not find these arguments persuasive. The following argument might work: "With competition in postal delivery, the natural market structure is duopoly (think UPS and FedEx), so price wouldn't fall much, coordination problems across dual networks would occur, and some rural users would be worse off.  So the current quasi-monopoly works about as well as we can hope for." That is the argument which best defends the current structure of the post office as a privileged quasi-monopoly. The real costs of the quasi-monopoly are the innovations and cost reductions we might have had but didn't, whether those are large or small (or negative possibly).  I doubt that the public is estimating that path when expressing their approval of the post office. For obvious reasons, an inefficient quasi-monopolist might run high costs and overinvest in public relations.  Some of the world's worst post offices have pretty stamps and the guy behind the counter really does smile like grandpa. From the comments: "After you consider the miracle of 40-50 cent Kiwi, does $.44 for first class mail sound like a bargain?"  The Kiwi fruit, of course, probably comes from Italy or New Zealand and it has to be grown and protected from bruising and shipped a long way.  It's a tricky comparison, however, read the comments here.

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