Unit 3 Micro: Market Power in International Parcels

The international parcels industry is a superb example of a network industry where the fixed costs are high and the marginal cost of collecting, sorting and delivering each parcel is way below the average cost for a particular parcel business. Two global integrators, UPS and TNT Express are set to join forces in Europe as part of a merger but the European Competition Commission is investigating this planned horizontal integration on the grounds that a much larger combined business will raise market concentration levels to a position that might harm consumers.

“UPS and TNT Express are two out of the only four so-called “integrators” currently operating in Europe. Integrators are companies that control a comprehensive air and road small package delivery network throughout Europe and beyond and are capable of offering the broadest portfolio of such services. The other integrators present in Europe are DHL, which is owned by Deutsche Post, and FedEx, a US-based company”

(EU Competition Commission press release, July 2012)

This new video from The Economist provides some excellent background on the industry and gives a vivid illustration of the investment needed to run an international parcels business.