Monopoly and supernormal profits - an update

Almost exactly a year ago I blogged on Analysis and Evaluation - do monopolies always make supernormal profits? which was in part about the massive losses that the U.S Postal Service were making, despite having a monopoly (by law no other business may deliver non-urgent mail or deliver directly to residential and commercial mailboxes). The latest figures came out today so have they managed to turn the business around?

Instead of making improvements, the losses have got much worse, increasing to US$15.9 billion in the latest financial year! As has been the case with some of the big car companies in previous years, having to pay for future retiree health benefits has a huge impact with US$11.1 billion of the loss attributed to this fact. If this and other labour related expenses were taken out of the accounts, the loss would be a paltry US$2.4 billion which is an improvement on the last year!

Having government control and regulation can have its benefits but also significant costs. If USPS were in the private sector, it would have long ago ditched its unprofitable Saturday mail delivery and saved a significant amount of cash. However, current law states that they must deliver on Saturday and while there is legislation before Congress that could change this, it may not happen anytime soon.

The following graphic shows one of the main problems alluded to in the earlier blog piece, although USPS is a statuary monopoly with significant barriers to entry, technology has meant that demand for their product is declining (and the losses are mounting). An excellent example for students to use for evaluating the usual textbook theory!

The original article can be found here.