US Post Office

–a Monopoly Essay, Research Paper

Monopoly of the Postal Service

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 in 1979 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 markets (#4, 1)." So who is to know which market would be

better for the American economy 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.