Why Should the Postal Service Deter Amazon’s Competitive Entry into Last-Mile Parcel Delivery?
By J. Gregory Sidak (Criterion Economics, L.L.C.)
In its June 2017 Risk Analysis Research Center (RARC) Report, the Office of Inspector General (OIG) of the US Postal Service asked a world-renowned expert on postal economics, Professor John Panzar, to create a theoretical model of the modern parcel-delivery market. Panzar’s 60-page white paper, appended to the RARC Report, presents in detail a mathematical model of Amazon’s optimal dispatch strategy for last-mile parcel delivery as a function of different rates charged for such delivery by the Postal Service, FedEx, and UPS. Panzar says that his model “reveals conditions under which the rates offered by the [Postal Service, FedEx, and UPS] are low enough to deter [Amazon] from operating its own delivery vans.” As if promoting the creeping expropriation of a private industry, Panzar’s analysis recommends that a state-owned enterprise cut its prices so far as to deter competitive entry by a more efficient and highly innovative private firm. However, Panzar’s stylized mathematical model rests on unreliable economic assumptions and offers no useful information about last-mile parcel delivery in the real world. His static model fails to account for Amazon’s broader strategic goals, such as those motivating its acquisition of Whole Foods in August 2017. Panzar’s normative conclusions emphasize benefits to the Postal Service and unsolicited benefits to Amazon (as well as UPS and FedEx) but neglect potential harm to consumers of postal products. Moreover, his recommendation that the Postal Service deter Amazon’s entry into last-mile delivery would exceed the powers that Congress delegated to the Postal Service. If implemented, that recommendation would potentially violate antitrust law. In short, Panzar’s analysis is not a reliable or useful guide for either the Postal Service’s managerial decisions or its regulatory oversight.
Featured News
CVS Health Explores Potential Breakup Amid Investor Pressure: Report
Oct 3, 2024 by
CPI
DirecTV Acquires Dish TV, Creating 20 Million-Subscriber Powerhouse
Oct 3, 2024 by
CPI
South Korea Fines Kakao Mobility $54.8 Million for Anti-Competitive Practices
Oct 3, 2024 by
CPI
Google Offers Settlement in India’s Antitrust Case Regarding Smart TVs
Oct 3, 2024 by
CPI
Attorney Challenges NCAA’s $2.78 Billion Settlement in Landmark Antitrust Cases
Oct 3, 2024 by
nhoch@pymnts.com
Antitrust Mix by CPI
Antitrust Chronicle® – Refusal to Deal
Sep 27, 2024 by
CPI
Antitrust’s Refusal-to-Deal Doctrine: The Emperor Has No Clothes
Sep 27, 2024 by
Erik Hovenkamp
Why All Antitrust Claims are Refusal to Deal Claims and What that Means for Policy
Sep 27, 2024 by
Ramsi Woodcock
The Aspen Misadventure
Sep 27, 2024 by
Roger Blair & Holly P. Stidham
Refusal to Deal in Antitrust Law: Evolving Jurisprudence and Business Justifications in the Align Technology Case
Sep 27, 2024 by
Timothy Hsieh