Liberalization and efficiency in the European postal sector

Abstract

Market competition has been widely considered as one of the main determinants of business efficiency. This study evaluates this hypothesis for European postal operators. In particular, it takes advantage of the coexistence of various degrees of competition in national postal markets and the differences in regulations established among countries. For this purpose, a stochastic production frontier model is estimated, using a database of 17 European national postal operators. The results show that the degree of competition in domestic markets and the independence of national regulatory authorities are the main factors to explain the increase in efficiency in the postal sector. This reinforces the need for transposing the European regulatory framework into all national postal markets and opening them up to competition with no further delay.

Notes

¹To obtain the output variable corresponding to the number of postal shipments processed, it was necessary to aggregate the number of letters and parcels. In view of the disproportion between the two and the higher cost of processing the latter, we opted for a weighted aggregation, adding the number of parcels multiplied by 10 to the number of letters processed. Nevertheless, we have used other weighting schemes for the inclusion of the number of parcels in a single output, obtaining similar results.

²The production function was specified as a Cobb–Douglas. Although specifications such as the translog enable a more flexible data characterization to exist, with limited data, however, it also tends to be overparameterized (Latruffe et al., 2004).

³This result is similar to that obtained by Picazo and Quirós (2003) for the telecommunications sector, applying the same analysis methodology.