The Effect of Regulation on Innovation in the Postal Sector
Postal regulators around the world are currently confronted with the question which regulatory regime maximizes social welfare. Economists have developed theoretical models to compare the welfare e¤ects of di¤erent regulatory scenarios (De Donder et al. 2005, Panzar 2002, Billette de Villemeur et al. 2003, Dietl and Waller 2002, Dietl et al. 2005). Although innovation is regarded as the driving force of social progress, economic development and welfare gains, relatively little is known about the e¤ect of regulation on innovation in the postal sector. Proponents of market liberalization often cite more innovations as the major benet when confronted with arguments such as the graveyard spiral and delivery economies of scale. To date, economists have not explicitly modelled the e¤ect of market liberalization, work sharing and other forms of postal regulation on innovation. We try to ll this gap by presenting a game-theoretic model that predicts the e¤ect of regulatory decisions on innovation incentives in letter markets. Our model focuses on process innovations which are by large the major innovations within the postal sector. We compare four di¤erent regulatory scenarios: postal monopoly, endto-end competition, and access regulation with and without bypass. These regulatory regimes represent the current and/or planned regulatory environment of developed countries. Quantitative results based on model parametrization will allow us to compare the innovation incentives, and the e¤ects of innovation on welfare. The paper is organized as follows. In the next section we present our model for each of the di¤erent regulatory scenarios. In section 3 we calibrate the model with Swiss data. Section 4 contains the main results, which