Wednesday, December 30, 2009

Postage Stamp Pricing

Two times in the last few weeks I've had people in conversation refer to the concept of "postage stamp pricing". This is the concept of universal pricing as first applied in the UK with the penny post.

It is usually assumed that this was a reform driven primarily by social goals. However, an excellent little contemporary item by the Frenchman Frederick Bastiat explains the alternative to postage stamp pricing. This is a high transaction cost alternative (read it, it is fun).

While I usually quote this as being an argument that the UK Post Office raised more revenue through the reform, the actual outcome in the argument is still a reduction. However, the social and economic gains are perceived to outstrip them.

The issue usually arises in discussing telephony tariffs, the history of which is poorly understood in Australia. There is one excllent monograph which I have been given permission to post on my website but have not done so yet. The interesting fact s that with the growth of computatio power to make differential pricing easier we actually wound up with greater price averaging. This was due to competitive factors.

The other interesting thing in the Bastiat article is the fact that the postal service was a net source of revenue to Government. Eli Noam in Telecommunications in Europe notes that the revenue from the Royal Post was in most countries one revenue stream that the monarch did not need parliamentary approval to spend, and hence the outcome that in those countries the post office took control of first the telegraph and then the telephone.

1 comment:

DanWeb said...

Not sure whether relevant to your blog on postage stamp pricing - but you may be interested in having a look at Reliance Communications(India) which had an espoused vision of transacting mobile comms at the same or less than postage charges which they materialised in their pricing which was- a flat price charge equivalent to a first class stamp. However recent commercial pressures arising from increased competition may have seen this strategy morph into something more profitability driven.