Postal Service Monopoly Essay, Research Paper

Postal Service As a Monopoly

In the United States economy most markets can be classified into four

different markets structures. But, each and every market in the United

States is completely unique from the others. Generally the best type of

market structure for the general public is per-fect competition because

it creates the lowest possible price for the public. There are some

exceptions were perfect competition isn t the best choice for the public

on account of various reasons. The United States Postal Service is one

of them and since the Postal Service is a monopoly, it is its own

market. This paper will discuss the budget dilemmas that the postal

service has faced for the past twenty years and if it is in the best

interest of the economy for the United States Postal Service to continue

as a monopoly.

The first time there was talk of privatizing the Postal Service was

in1979 when the Postal Service was losing vast amounts of money in the

long run. But since the Postal Service is a necessity for America, the

government had to subsidize the service in order for it to continue in

operation. In 1979 the United States Postal Service had a cash flow of

$22.5 Billion and was additionally receiving $176 million from

investing(#1, Intro). Even with this added revenue the Postal Service

was still greatly under funded on its own (#1, Intro). During this time

it was discussed to privatize the postal service and introduce

competition because of the extreme losses that the service was

experiencing. A positive argument for privatizing the Postal Service

was with numerous competitors in the market there would be more

efficiency and the public would receive lower prices. But this would

also increase the usage of resources, for example airplanes and cars.

One of the problems the Post Office had was its receipts from consumer

purchases that were submitted the next day after the transaction (#1,

i). If the receipts were submitted earlier the postal service would

receive more money because they could invest that money sooner (#1, i).

Another way the Postal Service could increased profits was by

competitively selecting banks that would give them higher interest rates

and such (#1, ii). Probably the most relevant and final way to improve

the budget of the Postal Service is to improve the bookkeeping poli-cies

and banking techniques (#1, ii).

Not only did the Post Service propose to increase profits but they also

proposed to cut costs in a number of ways. There were three methods

that were proposed in 1946 for the protection of salaries that no longer

exists (#2, Intro). These have to do with the rural mail carriers.

Under this antiquated method of delivering mail the Postal Service was

los-ing money to any mail that went to “rural” areas (#2, i) There are

48,000 mail carriers that deliver mail to millions of families that are

considered to be living in rural settings; this costs the postal Service

858 million dollars a year (#2, i). This is a fairly easy problem to

fix considering how much money is being lost. It was proposed that

money loss could be significantly cut down if the Postal Service

corrected the following problems. The rural mail carriers were assigned

a certain amount of time to deliver to a specific rural area, this

method was out of date and because of this the carriers have free time

for which they got paid for (#2, ii). The next problem was that other

mail routes based pay on how many miles the route covered, so the

carriers were getting paid by the mile (#2, iii). With this problem

fixed the Postal Service could saved 26.8 million a year (#2, iii).

There was also an hourly rate that was in effect which indirectly

promoted inefficient service (#2, iii). A stop to this could have saved

the Postal Service $255,000 a year (#2, iii). From the num-bers

mentioned above, it can be seen why the United States Postal Service was

losing so much money.

These problems did indeed eventually did get solved over the past

fifteen years and now the Postal Service is making record breaking

profits. Now in the first quarter of the fiscal year 1996 the Postal

Service already has a net income of $1.2 billion (#3, 1). Now not only

is the Postal Service just breaking even, but they are also making a

profit. On top of that, the 1.2 billion dollar figure is 115 billion

dollars better then the quarterly forecast predicted (#3,1). It is

incredible that they are not only making a reasonable profit but it is

increasing over the years. The Postal Service is also now reducing

debts. An example of this is when the Postal Service redeemed a 1.5

billion dollar loan two years in advance which will save them 22 million

dollars of interest in the next two years (#3,1).

The Postal Service isn t stopping with the revenue that it is receiving

now. The Postal Service is planning to increase its international

revenues of $1.2 billion by twice the amount in the next five years and

ten-fold by the year 2005 (#5, 1). The Postal Service is continually

working to “streamline” their operations for the future that they are

now run-ning. The Postal Service is continualy looking to cut back on

borrowing money. All of the recent financial borrowing has been through

the Federal Financing Bank, but the Postal Service now is looking into

outside sources, such as bonds in the public markets (#5, 2).

Business are starting to get jealous of the Postal Service because of

the great prof-its it is experiencing. The Postal Service is now making

a major impact on the United States Economy (#6, 1). Business are

pointing out that in 1995 the Postal Service had records of $1.8

billion in net income and a 1.7 billion dollar debt reduction (#6, 1).

The $54 billion revenue that the Postal Service is bringing in would put

them in 12th place on the Fortune 500 list and 33rd on the Fortune

Global 500, with the worlds largest corpora-tions (#6,1). A recent

study showed that domestic direct mail sales were at $333 billion in the

year 1994 (#6,1). This figure is expected to reach over $500 billion by

the year 2000 (#6,1)

It can be seen throughout this paper how the United States Postal

Service in-creased profits and does not have to borrow as much money as

before. It seems that the Postal Service is doing just fine while it is

a monopoly. But there are still two arguments for and against the

Postal Service continuing to remain a monopoly. On one side

compe-tition is thought to make industries in the market more efficient

and practice more innova-tive (#4, 1). But on the other hand the

competition is also thought to lead to “a wide-spread cream skimming,

with the postal service left only the high-cost, unprofitable mar-kets

(#4, 1).” So who is to know which market would be better for the

American econ-omy as far as the Postal Service goes. But it is

speculated if the United States Postal Service does keep increasing its

profits over the years, maybe it will be privatized.

Bibliography

1) United States. “General Accounting Office, Changes in the U.S. Postal

Service’s cash management practices could increase income and reduce

cost”: report / by the U.S. General Accounting Office, Washington:

General Accounting Office,”,”1979

2) United States. General Accounting Office, “Changes needed in the

United States Postal Service’s rural carrier pay systems”: report / by

the U.S. General Account-ing Office, Washington: General Accounting

Office, 1978

3) http://www.usps.gov/news/press/96/96002new.htm

4) http://nutcweb.tpc.nwu.edu/research/abstracts/i.2.html

5) http://www.usps.gov/news/press/95/95090new.htm

6) http://www.usps.gov/news/press/95/95095new.htm