Pricing and Worksharing Discounts in the Postal Sector

Abstract

This paper studies the optimal price structure in the postal sector when worksharing is available (e.g., for collection, sorting and transportation) and when the operator faces a break-even constraint. Users differ in opportunity and cost to engage in worksharing. We determine the optimal worksharing discount and provide sufficient conditions (on demand functions) under which it exceeds the ECPR level. Furthermore, we show that the optimal prices can be implemented through a global price cap imposed on a weighted average of the prices of all products. The appropriate weights are proportional to the market demand (evaluated at optimal prices) of the corresponding products.