Postal service pricing subject to reliability constraints on service quality

The 1980s and 1990s have seen competition emerge within industries traditionally imbued with monopoly status, for instance, the field of telecommunications. Within these industries, increased competition and the threat of the removal of statutory monopoly has resulted in greater awareness regarding the impact of quality on service and efficient pricing. Discusses, as an example, postal services, an industry of immense importance worldwide, suggests that the emphasis postal services place on the implementation of both timely and reliable service and competitive prices will inherently determine the success they will have withstanding the ever growing threat of international and national competition. While postal services and public utilities share similar peak‐load problems as discussed in the traditional natural monopoly literature, limited deferrability of mail service, together with service differentiated pricing, yields a framework sufficiently different so as to warrant a separate analysis. Presents a model which considers this analysis by developing welfare‐optimal prices, reliabilities and capacities under conditions of stochastic demand subject to reliability constraints on service quality and a minimum profit Ramsey constraint.