Monday, November 16, 2009

Natural Monopolies and the Post Office

There are some economic activities that are natural monopolies--the costs of entry are too high in a particular area for competition to produce sufficient returns. I believe that "last mile" delivery is a natural monopoly.

The "last mile" is a IT term. It refers to the distance between the main line--the route through which everyone's services are delivered--and the last mile--the portion that serves only a single customer.

When I see proposals about privatizing the Post Office, I always think of what a waste of fuel it is to have multiple people competing to deliver that last mile. The postal truck already makes a daily delivery. What we should be doing is cramming as much stuff onto that truck as possible. Reduce the manpower and fuel consumption by pushing everything onto that one, vital truck that makes the last mile. And we shouldn't just deliver packages that way, or letters, or things that are currently, commonly delivered. Everything that people currently leave the house and drive to go get should be delivered. Groceries is an obvious one, although the delivery timing would be a problem without refrigerated mailboxes, and locking mailboxes for that matter.

What we really need to do is break the delivery/collection aspects of the Post Office from the routing/transit aspects. Every area would have its local Post Office that handles all of the delivery/collection aspects--the natural monopoly (which doesn't mean that these could be privatized on an individual or franchise basis), and competing carriers to handle the routing and transit from Post Office to Post Office.

We wouldn't have a UPS truck, or a FedEx truck, or a Stop&Shop Pea Pod truck, but we'd have all of their delivery services on a single truck. The natural monopoly of the last mile delivery services.

2 Comments:

Blogger Noumenon said...

Competition seems to be OK on last mile delivery -- we have Fed Ex, UPS, post office, delivery boys, and going to pick it up yourself. I think the natural monopoly you're looking for is in the delivery system, not the delivery itself. That is, the roads -- which already are provided by government.

In your analogy, we need someone to lay a single data cable to everybody's house, but after it's up anyone can deliver over it -- you can get messages by e-mail, telephone, or cable TV, and you don't need someone to package up all your messages and send them as a big burst once a day.

5:37 AM  
Blogger Octavo Dia said...

Competition seems to be OK on last mile delivery -- we have Fed Ex, UPS, post office, delivery boys, and going to pick it up yourself.

Okay, but wasteful, which is what makes it a natural monopoly.

That is, the roads -- which already are provided by government.

I wonder how settlement patterns would change if all but through-ways were charged to the people who resided on them. The French, and French-Canadians, did so. Its effect was predominantly seen in rural areas, where the farmsteads were all right next to each other on the road, with the fields stretching out behind them.

you don't need someone to package up all your messages and send them as a big burst once a day.

Except the marginal cost of delivering something electronically is pretty well nil. The marginal cost of paying someone to drive a couple of tons of metal to delivery a 14 oz. package is quite high.

1:57 PM  

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