New business and regulatory strategies in the postal sector pier luigi parcu

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Pier Luigi Parcu

Timothy J. Brennan

Victor Glass Editors

New Business and Regulatory Strategies in the Postal Sector

TopicsinRegulatoryEconomicsandPolicy

Serieseditor

MichaelA.Crew,Newark,NJ,USA

Moreinformationaboutthisseriesat http://www.springer.com/series/6646

PierLuigiParcu •

VictorGlass

Editors

TimothyJ.Brennan

Editors PierLuigiParcu

FlorenceSchoolofRegulation –CommunicationsandMedia

EuropeanUniversityInstitute Fiesole,Italy

VictorGlass

RutgersBusinessSchool Newark,NJ,USA

TimothyJ.Brennan SchoolofPublicPolicy UMBC Baltimore,MD,USA

TopicsinRegulatoryEconomicsandPolicy

ISBN978-3-030-02936-4ISBN978-3-030-02937-1(eBook) https://doi.org/10.1007/978-3-030-02937-1

LibraryofCongressControlNumber:2019930126

Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartofthe materialisconcerned,speciﬁcallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicroﬁlmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped.

Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspeciﬁcstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse.

Thepublisher,theauthors,andtheeditorsaresafetoassumethattheadviceandinformationinthis bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalafﬁliations.

ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland

Preface

Thisbookisaresultofthe26thConferenceonPostalandDeliveryEconomics, whichwasheldonMay30–June2,2018,inSplit,Croatia.TheConferencewasa jointeffortoftheFlorenceSchoolofRegulation CommunicationsandMedia (FSRC&M)attheEuropeanUniversityInstituteandoftheCenterforResearchin RegulatedIndustries(CRRI)attheRutgersBusinessSchool.

Sincethe ﬁrstconferencewasorganizedinJuly1990,almost4000participants havehadtheopportunitytodiscussevolvingtrendsinthepostalanddelivery economicssector.ThisConferencecontinuestobeacrucialopportunityforthe relevantstakeholderstoshareknowledgeandbestpractices,followingthetradition establishedbyMichaelCrewandPaulKleindorferwhentheyheldthe ﬁrstconferencein1990.

TheConferenceonPostalandDeliveryEconomicsisatestamenttotheevolution inthepostalanddeliverysectoroverthelast25years:fromhighlettervolumestoa progressiveincreaseofparceldelivery,fromthestartoftheliberalizationprocessto thedisruptiveimpactofdigitalizationandtheInternet,andfromsector-speciﬁc activitiestonewbusinessdifferentiationandtonewcustomer-friendlysolutions. Atthesametime,theUniversalServiceObligationremainsacentralelementofthe regulatory,policy,andeconomicdebate.

TheConferencewasmadepossiblebythecontributionofgeneroussponsors.We wouldliketothankthemnotonlyfor ﬁnancialsupport.Inaddition,theyprovided helpfuladviceintheirserviceonourorganizingcommitteeaswellas,alongwith others,intellectualcontributions,advice,andencouragement:VirginieAlloo, KamakArzhangi,BrunoBasalisco,ClaireBorsenberger,StephenBrogan,Claire Carslake,MindaugasCerpickis,AlbertaCorona,PeterDunn,BlandineEggrickx, ColmFarrelly,LuciaFioravanti,Jean-PaulForceville,JimmyGårdebrink,Marina Gibbs,AdamGoodman,StefanoGori,AnnegretGroebel,PhilipGroves,Fiona Hamilton,JohnHearn,AdamHouck,GeorgeHoupis,AlisonJessop,DenisJoram, OlafKlargaard,MarineLefort,LeonardoMautino,AnnaMöllerBoivie,Eleanor Monaghan,HenrikBallebyeOkholm,MichelaRaco,PhilippeRégnard,Frank

Rodriguez,SimonaSanna,MichaelScanlon,LuigiScorca,MalcolmShaw,Soterios Soteri,MarkvanderHorst,TimWalsh,andTanyaWestley.

Thisyear ’sconferencebeneﬁtedgreatlyfromtheeffortsofElisabettaSpagnoliof theConferencesUnitoftheRobertSchumanCentreforAdvancedStudiesandofthe teamoftheFSRC&M,whowereincrediblyhelpfulduringtheConference,enabling ittooperateverysmoothly.OurspecialthanksgotoPaulaGoriofEUI’sSchoolof TransnationalGovernanceandChiaraCarrozzaoftheFSRC&M,withoutwhom thisconferenceandbookwouldnotexist.TheyandtheirEUIcolleaguesprovided bothadviceandassistanceonnumerousoccasionsandcontributedgreatlytothe successoftheevent.

Fiesole,ItalyPierLuigiParcu Baltimore,MD,USATimothyJ.Brennan

Newark,NJ,USAVictorGlass

TheConferencewaskindlysupportedby

RoyalMail

UnitedParcelService

PitneyBowes Ofcom

PosteItaliane

LeGroupeLaPoste

CopenhagenEconomics

IBMGlobalBusinessServices

Oxera

ComReg

FrontierEconomics

CullenInternational

K&LGatesLLP

NewZealandPostLimited Agcom

AnPost

Acknowledgments

Wewouldliketothankourdistinguishedkeynotespeakers,RaphaëlGoulet,Head ofUnit,DGGrowth,EuropeanCommissionandtheExecutiveBoardMemberof BIPT(theBelgianNationalRegulatoryAuthority)andChairmanoftheEuropean RegulatorsGroupPostalServices,JackHamande,whowasalsoourdinnerspeaker. Inaddition,wethankallauthorsandparticipantsoftheConference.Withouttheir contributions,theConferenceandthisbookwouldnothavebeenpossible.Theusual disclaimersareapplicable.Inparticular,theviewsexpressedreﬂecttheviewsofthe authorsandarenotnecessarilythoseoftheeditorsorsponsors.

PostalOperatorsas “GroundBased” OnlinePlatforms?

PaulaGoriandPierLuigiParcu

InducingOptimalQualityUnderPriceCaps:Why,How, andWhether .............................................15

TimothyJ.Brennan

ChallengesofRegulatingQualityofServiceinthePostalIndustry .....29

HenrikBallebyeOkholm,BrunoBasalisco,AnnaMöllerBoivie, andJimmyGårdebrink

CreatingLast-MileIncentivesfromInside-Out.ATemplateDrawn fromRuralTelecom ........................................45

VictorGlass

CrowdsourcingtheLastMile .................................55

MichaelD.Bradley,JeffColvin,andMaryK.Perkins

LessonsfromOtherNetworkIndustries:ShouldPostsSeek toCollaborateMoreintheLastMile? ..........................67

AdamHouckandBernhardBukovc

ConsolidationinUrbanLogistics:WhatCouldWeLearnfromPast ExperiencesandEconomyTheory? ............................79

ClaireBorsenberger

DesignandEnforcementofCompensationFundsAfter Confetra: ALegalandEconomicAnalysis ...............................91

AlessandraFratiniandMarcChovino

IstheCompensationFundanAppropriateToolforFinancing UniversalPostalServiceObligations? ...........................105 VincenzoVisco-Comandini

CompensationFundinPostalService:AStepForwardAfter thePolishCase ............................................119

S.Romito,S.Gori,andA.Rovero

Open-Data:ASolutionWhenDataConstitutesanEssential Facility? .................................................131

ClaireBorsenberger,MathildeHoang,andDenisJoram

VerticalIntegrationintheE-CommerceSector ...................143 ClaireBorsenberger,HelmuthCremer,DenisJoram, andJean-MarieLozachmeur

PricesandConditionsofAccesstothePostalNetwork: ThePrincipleofNon-Discrimination ...........................161 TilRozman

TheImpactofIncreasingCompetitionforNon-ContractParcels onPostalPricesandEfﬁciencyDecisions ........................175 PhilippeDeDonder,FrankRodriguez,andSoteriosSoteri

DisorientedNoMore:AnEconomicsCompassfortheEU’sCost OrientationPrinciple .......................................191

HenrikBallebyeOkholm,MindaugasCerpickis,andBrunoBasalisco

HowPriceSensitiveIsLetterAdvertisingMailintheUK? ..........207 FrédériqueFève,ThierryMagnac,LeticiaVeruete-McKay, andSoteriosSoteri

Brand,ProductDifferentiationandPostalMarketOutcomes .........219 IsabelleCarslake,GeorgeHoupis,andEllieMonaghan E-Government:ACurseoranOpportunityforPosts? ..............235 BlandineEggrickx,OlafKlargaard,MarineLefort,andPhilippeRégnard

RelatingPostalActivitytotheBusinessCyclebyLinearRegression withIntegralEquations .....................................251 KatalinK.Clendenin,SoiliouD.Namoro,andEdwardS.Pearsall

ToWhatExtentHasE-SubstitutionImpactedtheDemand forLettersandWhichFactorsAreConstrainingItsAdvance ........269 CatherineCazals,ThierryMagnac,FrankRodriguez,andSoteriosSoteri

TheDanishProblem:SoonEverybody ’s?AComparativeAnalysis ofDigitalizationEffectsonLetterVolumes .......................285 PeterAndersson,SoﬁaBengtsson,andJohannaEriksson ParcelLockers,anAnswertothePressureontheLast MileDelivery? ............................................299 ÖzhanZurel,LaurentVanHoyweghen,StijnBraes,andAurelieSeghers

TheTransformationofPostalServicesinLightofTechnological

LuigiScorca

PostalIndustryDiversiﬁcation:ExploringNewWorldsandFacing NewRegulations ...........................................327

VirginieAlloo

PostalOperatorsas “GroundBased” OnlinePlatforms?

PaulaGoriandPierLuigiParcu

1Introduction

Postalservicesmaylookoldfashioned,especiallytotheonlinegenerations,but postaloperators(POs)historicallywerethe ﬁrst “communicationscompanies”,with thelargestcustomerbasesandasstatedinTitle39oftheU.S.Code,itwasthePO that “bindsthenationtogether” . 1

Inthetwentiethcentury,voicetelecommunicationschallengedbutdidnotdisplacepostalservices.However,yesterday’schallengeofvoicetelecommunications topostaloperatorsappearsminorcomparedtothedisruptionnowcausedbyonline communications.ThattheInternetishavingadisruptiveimpactonmany,ormaybe all,businessmodelsisobvious.Whatislessclearisif,andhow,sectorsaffectedby onlineservicescanreacttothedisruptionandsurvivebytransformingitintoan opportunity.

1 Article39(a) “TheUnitedStatesPostalServiceshallbeoperatedasabasicandfundamental serviceprovidedtothepeoplebytheGovernmentoftheUnitedStates,authorizedbythe Constitution,createdbyActofCongress,andsupportedbythepeople.ThePostalServiceshall haveasitsbasicfunctiontheobligationtoprovidepostalservicestobindtheNationtogether throughthepersonal,educational,literary,andbusinesscorrespondenceofthepeople.Itshall provideprompt,reliable,andefﬁcientservicestopatronsinallareasandshallrenderpostalservices toallcommunities.ThecostsofestablishingandmaintainingthePostalServiceshallnotbe apportionedtoimpairtheoverallvalueofsuchservicetothepeople.”

P.Gori(*)

SchoolofTransnationalGovernance,EuropeanUniversityInstitute,Fiesole,Italy

e-mail: paula.gori@eui.eu

P.L.Parcu

FlorenceSchoolofRegulation – CommunicationsandMedia,EuropeanUniversityInstitute, Fiesole,Italy

e-mail: pierluigi.parcu@eui.eu

P.L.Parcuetal.(eds.), NewBusinessandRegulatoryStrategies inthePostalSector,TopicsinRegulatoryEconomicsandPolicy, https://doi.org/10.1007/978-3-030-02937-1_1

TheEuropeanCommission,analyzingthedigitalrevolution,haslistedanumber ofessentialfeaturesoftheso-calledonlineplatformsthatarekeytounderstanding theopportunitiestheypresent.Onlineplatformcreateandshapenewmarkets (substitutingorintegratingtraditionalones);theyoperateinamulti-sidedmarket environment;theyexploitdirectandespeciallyindirectnetworkeffects;theyrelyon ICTtoconstantlyreachusers;theycreatedigitalvalue(EuropeanCommission, 2016).Amongthekeyingredientsfortheafﬁrmationandsuccessofonlinebusiness models,nomatterthespeciﬁctype,istheabilitytogatherandexploitlargeamounts ofdataandtoacquirethetrustofconsumers.

Historically,becauseoftheirintermediaryrole,POsfarewellonbothof thesedimensions:theyhavedevelopedandusedlargedatabasesandhave establishedalong-termrelationoftrustwithconsumers.POshaveadditional strengthsthatfollowfromowningaseriesofotherimportantassetssuchasa widespreadpresenceofphysicallocations,alargeworkforce,amultitudeof vehicles,andsoon elementsnormallyeithermissingorsecondaryinthebusiness modelofonlineplatforms.

TheaimofthispaperistounderstandwhetherPOscouldrestructure theirbusinessmodelsbytransformingthemselvesinanewkindofground-based onlineplatformsor,atleast,bycreatingstrategicallianceswithothermajoronline platformsbyvirtueofhavingsomewhatcomplementaryassets.Tothispurpose, afterabriefreviewofthedisruptioncreatedbyonlineplatforms,wewill examinebehaviorsandintentionsofsomeimportantPOsactivewithinthe EuropeanUnion.Wethenlookattheassetsandstrengthsthatmayfacilitatea movetowardastrongeronlineroleforPOsandsketchrisksandopportunitiesthey faceastheyattempttoredeﬁnethemselvesasapossiblenew genus ofonline platform.

Afterthisintroduction,Sect. 6 containsaliteraturereviewofthedigitalopportunitiesofferedtoPOsthatareanalogoustothoseweplantoexploreinthischapter. Section 3 describesthePObusinessdilemmapresentedbydigitalization.Thisis followedinSect. 4 byabriefpresentationofthemostrecentdigitalstrategiesof ﬁve largeEuropeanPOs:RoyalMail,DeutschePostDHLGroup,LeGroupeLaPoste, PosteItalianeandCorreosGroup.2 Bydescribingtheirreactionstotheonline challenge,weaimtounderstandifbestpracticesareemergingthatleadtoanew majorroleforPOsintheonlineworld.InSect. 5,wesketchourideaofPOsasnew kindofground-basedonlineplatform.Finally,weconcludewithasummaryofour argumentandsuggestedleadsforfurtherresearch.

2 Theauthorswouldliketothankthe ﬁveoperatorsforhavingsharedtheirfeedbackasafollow-up ofthepresentationofthedraftversionofthispaperatthe26thConferenceonPostalandDelivery Economics.Theirinputwaskeyfor ﬁnalizingthischapter.

2AShortSurveyoftheExistingLiteratureonPOs DigitalRole

MostofthepreviousliteraturetreatingtherelationbetweenInternetandthepostal sectorseemstoagreethatnotwithstandingthedisruption,POscanproﬁtfromonline servicesandgointoa “Version2.0” oftheirbusinessmodel.Asher,Callan,and Marsh(2011),analyzingtheroleofthepostalserviceinthedigitalageintheUnited States,concludedthatUSPScouldcontinueto “bindthenationtogether” by embracingtechnologicaldevelopmentanddigitalization,ifitisabletoidentifya functionalareawhereitcoulddesignandimplementadigitalstrategy.Inthisregard, Asheretal.mentionedanumberofprivilegedspacesforactionsuchas e-Governmentplatforms,identityvalidation,privacyprotection,transactions’ security,e-commerceenabling,hybridandreversehybridmail(RHM).

OntheothersideoftheAtlantic,Jaag,Stahl,andStroelin(2011)analyzedthe potentialadvantagesofRHMwithafocusonSwitzerland,underliningimportant costsavings.AkeycharacteristicofRHMisthatthereceivercanpreviewthe envelopeand,ifinterestedinthecontent,canagreeonaphysicaldeliveryor eventuallyaccepttheelectronicversionofthedocument,forgoingitsphysical delivery.ThedirectconsequenceofRHMwouldbetoreconsidertheUniversal ServiceObligation(USO)and,inthewordsoftheauthors,togofora “technologicallyneutralformulationoftheUSO” (Jaagetal., 2011,p.8).

Borsenberger,Joram,Klargaard,andRégnard(2016)stressedPOs’ historicalrole astrustedintermediariesthatprotectthelegalprincipleofconﬁdentialityofcorrespondence,whichtheycouldusetopresentthemselvesas “PersonalDataStores” . Thepowerofthepostalbrand,trustandthephysicalnetworkasanassetthatcan bridgetheofﬂineandtheonlineworld(e.g.digitalliteracy)werethemainelements onwhichthisrecommendationwasbased.ThesamestudyalsoanalyzedhowPOs couldleveragingthetrustanddirectcontactwiththecommunitytoofferthemselves asmanagersofdigitalidentities.

Whileinthephysicalworld,identityisauniquecivilstatusrecognizedbyapublic authority,inthedigitalworldanindividualcanhaveseveraldigitalidentities.This makesonlinemarketsmoreanonymousandheavilydependentonreputationand verification.Themultiplicationofdigitalprofiles,usuallyonsocialnetworksorglobal onlineplatforms,allowsforgatheringofalargesetofdatabutcanalsohaveacomplex impactonprivacyanddataprotection.AccordingtoBorsenberger,Klargaard,and Régnard(2017),POs,couldbethemostobviousactorstocollaboratewithgovernments increatinguniquestate-sponsoredplatformstoredefinethedigitalidentitiesofcitizens.

In2012,theMITCenterforDigitalBusinessissuedastudy(Parker&Van Alstyne, 2011,p.13),commissionedbytheInternationalPostCorporation,aimedat providingaroadmaptoestablishwhattheycalled “digitalpostalplatforms”.The approachwastostartbyintroducingexamplesanddeﬁnitionsofonlineplatforms andthentooutlinetheopportunitiesforthepostalsectorbyidentifyingthe “platform elements” ofthepostalactorsthemselves.Theirsuggestionwasnottostartfrom whattheInternethasdisruptedinthepostalworldandlookforaresponse,but insteadtostartfromthekeyfeaturesofonlineplatformsandthenmovetothe

4P.GoriandP.L.Parcu

opportunitiesandadvantagesthatPOshave.Thisphilosophyofhowtorespondto digitalizationissimilartowhatweareproposinghere.Again,theneedtore-de ﬁne theUniversalServiceObligation(USO)emergedasakeyelementoftheanalysis.

POscouldnotonlyembracedigitalization;theycouldalsobecomepivotal facilitatorsofdigitalinclusion.Adigitaldivideexistsbetweenurbanandrural areas.Asigniﬁcantportionofthepopulationstilllackselementarydigitalskills becauseofage,literacy,interestetc.3 Manybusinesseshaveremainedoff-line. SheedyandMoloney(2015)examinedthepotentialforacollaborationbetween PostalOperatorsandnationalandlocalauthoritiestoassistcommunitiesinusing digitalservicesandprovidingdigitalliteracy,bothmediumandcontent-related.The authorspresentedsurveyresultsshowingthatlocalcommunities,includinglocal businesses,wouldbeeagertohaveaCommunityInfopointplatform.Sucha platformwouldactasanassistantfordigitalservices,provideonlinespacefor businesses,serveascommunicationtoolforthelocalauthorities,aswellasoffer otherservices.SheedyandMahoneystatedthatNationalPostalOperatorswouldbe thenaturalmanagersofthistypeofplatform.

Thecommonstrandoftheliteratureontherelationbetweendigitalizationandthe postalsectoristheimportanceforPOstoexploitthepostal “brand” anditsunique assets,especiallywhenconfrontingthemajorweaknessofonlineplatforms:lackof trust(Asheretal., 2011).Wedevelopthislineofreasoningbelow.

3TheImpactoftheInternetonPostalMarkets

TheimpactoftheInternetrevolutiononthepostalmarketswasquiteprofound. Emails,i.e.thee-substitutionofdirectmail,werethe ﬁrstonlineservicesthatmost citizensbeneﬁttedfrom.Besidesemails,otherphenomenasuchasonlinenewspapersandonlineadvertisingcontributedtotherapide-substitutionforothermain traditionalpostalproducts.

Furthermore,iftheprimarymissionofpostaloperatorswastofacilitatewritten personal,administrativeandcommercial,communicationbetweencitizens includingwiththegovernmentandotherprivateandpublicinstitutions almostallthese exchangesappearedexposedtobeingsystematicallyreplacedbyonlineservices.It seemedjustamatteroftimefordigitaltransitiontotakecompleteeffect,withthe acquisitionofawidespreaddigitalliteracy.Table 1,producedby(Copenhagen Economics, 2018)reportfortheEUCommission,showsthepotentialextentof thee-substitutionprocessinrelationtomostessentialpubliccommunications.

NotwithstandingthepotentialfortheInternettobeentirelydisruptive,postal operatorssofarhaveessentiallysurvivedthetempestofe-substitution,butdeﬁnitely notthepostalmarkets toutcourt.KeystoPOs’ resiliencewereperhapstheirlegacy ofcontinuousdirectcontactwithcostumersandthehistoricalroleofPOsinthe

3 SeetheEuropeanCommissionDESIindex, https://ec.europa.eu/digital-single-market/en/humancapital.

community,includingbeinganelementofthestate,employinglargenumbersof workers,widespreadphysicalpointsofpresenceandvehicles,and,veryimportant,a bondoftrustwiththecommunitybuiltacrossdecadesorevencenturies.Allthese assetsaretosomedegreemissingintheonlineworld,alackthatprobablyconstitutes sofaroneofitsmainweaknesses.Aninterestingexampleofhowdigitalcompanies mayreacttothislackofpresenceandcontactistheDutche-commerceonline platform “Bloei”,thatrecentlyaddeditsowndeliveryservicejusttohaveadirect contactwithitsusers.

Inanycase,theneteffectofInternetdisruptioninthepostalsectorisambiguous. Ontheoneside,emailsandothere-substitutionshavelargelyreplacedphysicalmail, thustriggeringtherapiddeclineinlettersvolumes.4 Butontheotherside,thespread ofe-commercehasstronglyincreasedtheparcelsdeliverybusinessofPOs,especiallyintheBusiness-to-Consumer(B2C)andConsumer-to-Consumer(C2C)segments.Moreover,evenifotherservicesalsotraditionallyprovidedinpartbyPOs, suchaspaymentservices,caneasilybedoneonline,POsandtheirwidespreadnetof postofﬁceskeepanadvantagethroughakeyfeaturestillpartiallylackinginthe onlineworld,againtrust.5

POs,therefore,remaininthatparticularpositioninwhichtheycansticktotheir historicalroleandacceptthedeclineinlettervolumesandothertraditionalactivities, ortheycanattempttoevolvetowardabusinessmodelinwhichthedigitalworld

4 Emailsarethesameproduct,butsuperiorinmanydimensions,offeredforfreethroughadifferent channel.

5 OnthispointcomparetheinterestingsurveyontheCommunityInfopointintroducedinSheedy, C.,&Moloney,M.(2015). Digitalinclusion:Aroleforpostaloperatorsinasmartworld,postal anddeliveryinnovation.Berlin:Springer.

assumesanever-increasingspace.ThecomparisonbetweenthedestinyofPolaroid (belatedmovetodigitalphotography)andNetﬂix(immediatemovefromDVD deliverytoonlinecontentdistribution)showsthatthetimingofreactioncanbeakey toemergeasactorsofthedigitaldisruptionratherthanvictims(Asheretal., 2011).

4DigitalizationandDiversiﬁcation:TheEuropean Reaction

ManypostaloperatorswerequicktoreacttotheInternetrevolution,buttheystarted almostimmediatelytodivergeintheirresponse.Essentially,POsmovedalongtwo maindimensions:a ﬁrstgroupembracingprimarilydigitalizationandtechnological developmentwiththeaimtoimprovetheirtraditionalbusinessmodel,andasecond groupchoosingaradicaldiversiﬁcationofthebusinessmodelstowardadjacent marketareasasthemaindriver(Parcu&Silvestri, 2017).

Forthe firstgroup,facingdigitalizationessentiallymeantintroducingadditional servicesliketrackingandtracing,notificationofthestatusofthedelivery,hybrid mail,reversehybridmail,andnewe-governmentservices.Probablyatthebeginning,thiswasperceivedasa firststepinthemodernizationofthepostalmarkets,but forsomeoperatorsitremainstodaythemainreactiontopressurefromtheonline world.OtherPOsinsteadwentdecisivelyforamoreradicalchange,bettingon businessdiversificationandmovingtoadjacentareas,primarily finance,banking andinsurance.Aconsequenceofthesetwostrategiesinresponsetoe-substitutionis thatdespitedifferenthistoriesofpostalserviceindifferentcountries,therewasa commonglobalidentityoftheservicesofferedbyPostalOperatorsaroundthe world.WearetodayinasituationwhereeachPO,byexploringandmixingthe twomainbusinessstrategiesalreadymentioned,hascreateditsownoriginalprofile (Jaag,ParraMoyano,&Trinkner, 2016).

Toconfirmthisobservation,weexaminedthe2016yearlyreportsofRoyalMail (Sect. 4.1);DeutschePostDHLGroup(Sect. 4.2);LeGroupeLaPoste(Sect. 4.3); PosteItaliane(Sect. 4.4)andCorreosGroup(Sect. 4.5),withaspeci ficfocusontheir digitalbusinessmodelstrategiesandon “wherethemoneyiscomingfrom” method ofanalysis.Asynthesisoftheoriginof2016revenuesofthe fiveoperatorsis presentedinthefollowingTable 2.

4.1RoyalMail

Thefocusontraditionaldeliveryservices(lettersandparcels)remainsthekey characteristicofRoyalMail’sstrategy,whichhas “aclearvisiontoberecognized asthebestdeliverycompanyintheUKandacrossEurope” (RoyalMailplc, 2017, p.16)andwhosemainactorsareUKPILandGLS(respectivelyconcentratingon LettersandParcelsdelivery).RoyalMail ’sstrategicprioritiesaredefendingletters, winninginparcelsandgeographicexpansioninbothservices.

Table2 Operatingrevenuesof ﬁveEUmajorpostaloperators,percentages

RoyalMail UKPIL(lettersand parcels) ExpressGLS(parcels)Other services 78.30.0(includedinUKPILandGLS)21.70.0

DeutschePostDHLGroup Post,E-commerce, parcels ExpressGlobal forwarding freight Supply chain 28.72423.423.8

LeGroupeLaPoste

Servicesmail-parcelsGeoPostLaBanquePostaleDigital services 47.426.224.02.1

PosteItaliane

Postalandbusiness services FinancialservicesInsuranceservicesOther services 11.51671.80.7

CorreosGroup Postal,telegraphand parcelservices

Servicestothirdpartiesandof bankingservices MoneytransferOther 951.21.40.9

Initsbusinesscase,thedisruptionoftheInternetistransformedinanopportunity mainlyprimarilyrelatedtoe-commerce.Consequently,RoyalMailisimprovingits parcelsdeliveryservicebystronglyimprovingcustomerexperience(e.g.sameday delivery)andusingdigitalizationbothtoimproveitsinternal ﬂowandtointeract withcostumers(e.g.theLoveToPostapp).Inparallel,thegroupisexpandingin othergeographicalareasoftheglobe,bothbybuyingotherdeliverycompanies (e.g.theacquisitionofthenext-daydeliverycompanyGSOinCalifornia)andby settingupstrategicpartnershipswithretailersandnetworkpartnerstoincreasecrossbordervolumes(especiallyinAsia).RoyalMailisalsoworkingone-Government initiatives.Itisoneofthecerti ﬁedcompaniesthatoffersGOV.UKVerify,a governmentdigitalIDprogram.

Tosummarize,theonlineworldisleadingRoyalMail,topursuetheparcels marketasanewgrowthopportunity,continuouslyimprovequalityofserviceonits traditionalbusiness,andexpandgeographicallytoridethewaveoftheincreasein globaldemandforparcels’ delivery.

4.2DeutschePost

DeutschePostDHLGroupstrategyissimilartoRoyalMailinfocusingprimarilyon deliveryandlogistics.Inthewordsofthe2016AnnualReport: “Wearefocusingon

ourcoremailandlogistics” and “intendtobeneﬁtfromgrowthinthee-commerce segmentandindevelopingandemergingmarkets” (DeutschePostDHLGroup, 2017,p.30).DeutschePostDHLGroupisorganizedintofourdivisions:PosteCommerce-Parcel,Express,SupplyChainandGlobalForwardingandFreight.The revenuescomingfromeachofthesedifferentdivisionsarealmostequal.

DeutschePostinterpretstheonlinechallengeasatriggertoboostparcelsdelivery,overalltechnologicaldevelopment,anopportunitytointroducenewtailored services(withintheExpressdivision,TimeDeﬁniteInternationalandMedical Express)andtoimprovelogisticsservices,particularlywithintheSupplyChain division.Withinthisdigitalstrategy,DeutschePostisalsoseekingopportunitiesfor geographicmarketexpansionand,accordingtothe2017AnnualReport,aimsto haveaminimumof30%ofthegrouprevenueinemergingmarkets(forexample Malaysia,VietnamandChile)by2020.Inaddition,DHLGroupisexploring acquisitionsofindustryexpertiseinnewsectorssuchaslifesciences,healthcare, automotive,electricmobilityandfoodlogistics.

ThecorebusinessesofDeutschePostremainsdeliveryandlogisticsbut interpretedmorebroadly.Thecompanyisseekingtoplayanewroleinso-called smartcitiesand,moregenerally,inthedigitalsociety.Tailoredsolutions,express services,involvementinautomotiveandhealthcare,foodlogistics,areallareas whereDeutschePostisseekingto ﬁndaspaceasanenablerofchange,without abandoningitsprimarymissionindelivery.Itsstrategytowardsinnovationisalso translatedintosetting-upaninternalincubatorandaprivilegedcollaborationwith PlugandPlay,aplatformecosystemandventurecapitalfund.

4.3LaPoste

Whilehavingsomecommonelementswiththetwoabove-mentionedstrategies,the businessmodelofLeGroupeLaPosteappearstohaveundertakenafurtherstep towardsamixbetweendigitalizationofthecorebusinessandoutrightdiversification.Undertheumbrellaofthe “LaPoste2020:Conqueringthefuture” (LeGroupe LaPoste, 2017,p.14)strategy,thegroupisnoworganizedas fivebusinessunits: Services-Mail-Parcels,GeoPost,LaBanquePostale,DigitalServicesandLaPoste Network.The firsttwounitscountfor73.6%oftheconsolidatedoperatingrevenue, whichmeansthatthetraditionalbusiness(lettersandparcels)isstillkeytothe presentofthegroup.

Amajordiversiﬁcationcamein2005withthecreationofLaBanquePostale, whichtodayaccountsfor24%oftheconsolidatedoperatingrevenue.Itisstructured aroundthreedivisions:retailbanking(thecorebusiness),insuranceandasset management.LaPosteisalsoactiveinmobilecommunicationviaLaPosteTelecom,amobilevirtualnetworkoperator(MVNO).Otherdigitalservicescurrently accountforonly2.1%oftheconsolidatedoperatingrevenueofthegroup,butthey aregrowingthespacefordigitalidentities,secureinformationexchangeplatforms,

andhybridproductssuchasarchivingandsupportingpersonalandadministrative services.

Finally,LaPosteisalsoseekingaroleinthenewsharingeconomy/smartsociety evolution.Itaspirestoprovideservicessuchascollectingandrecyclingpaper, co-mobility,deliveringhealthproducts,andbeingpresentinsmarthomes.Particularlyinterestingisitspresenceintheso-calledsilvereconomy,assistingoldpeople, especiallyinhelpingthemtomakethedigitaltransition.

4.4PosteItaliane

PosteItalianeisaclearandbraveexampleofapostaloperatorinwhichdiversiﬁcationwaspushedfurther.TodayitsfouroperatingsegmentsarePostalandBusiness,Finance,InsuranceServicesandAssetManagement,andOtherServices (includingPosteMobile).Inparticular,itscustomerdistributionnetworkisbuilt aroundthreemainpillars:mailandparcel;mobileanddigitalpayments;and ﬁnancialandinsurance.ThePostalandBusinessdivision,whichincludeslogistics, representsin2016only11.5%oftotalrevenueofthegroup.Thissurprisinglysmall numberisclearevidenceoftheradicalchangeinbusinessstrategybyPosteItaliane inthepastfewyears.

WhatappearstobethenewcoreforPosteItalianetodayisitsInsuranceServices andAssetsManagementbusiness(71.8%ofturnover),wherethegroupsuccessfully operatesinlifeinsurance(i.e.long-terminvestments),non-lifeinsuranceandhealth insurance.FinancialServicesalsocontributes16%oftotalrevenue.Finally,Poste Italianediversiﬁedalsotowardtelecomservices,wherePosteMobileisthe ﬁrst mobilevirtualnetworkoperatorinItalywithabout50%ofthemarketsharefor MVNOs.

Withinitsspeci ﬁcdigitalstrategy,PosteItalianewasaccreditedasaDigital IdentityManagerbytheAgencyforDigitalItaly.Itisdevelopinganewservice “RitiroDigitale” thatprovideshybridmail.ThroughSPID(SistemaPubblicodi IdentitàDigitale)PosteItalianeoffersaccesstogovernmentdigitalservices(witha 90%marketshare);withpagoPAoperatesastheleadingpaymentserviceprovider forpaymentstothegovernment.ItalsohasanagreementwiththeMinistryof Educationtoprovideacardplatformforstudents.PosteItalianeisalsoapartnerofa TalentGardenpointinRome,whichisanincubatorfordigitaldevelopers.

4.5CorreosGroup

CorreosGroupisprobablythecompanymostdifﬁculttoclassifyinthisstrategic assessment.InthewordsofitsAnnualReport: “ThepurposeofCorreosGroupisto becomethebestglobalproviderinphysicalanddigitalcommunicationsandparcel services” (GrupoCorreos, 2016,p.5).Letterandparceldeliveryarestillitscore

business,butitseffortistocollaborateandpartnerwiththeonlineworldappears extremelyrelevant.TheCorreosGroupcomprisesCorreosyTelégrafosandits subsidiaries,CorreosExpressPaqueteríaUrgente,NexeaGestiónDocumental,and CorreosTelecom.

CorreosyTelégrafosistheproviderofphysicalanddigitalcommunicationsand parcelssolutions,whicharestillbyfarthemainactivityoftheGroup,providing morethan90%oftherevenues,whileCorreosExpressdeliversparcelswithin24h. NexeaGestiónoffersintegratedmanagementofcorporatemasscommunications andcustomizedtechnologicalsolutionsfordocumentprocesses.CorreosTelecom providesnetworkservicesinthetelecommunicationsmarket.

TherecentrelationshipbetweenCorreosandtheonlineworldisextremely interesting.Whiledeliveryremainsitscorebusiness,Correosestablishedverystrong partnershipswithimportante-commerceoperatorssuchasAlibaba,anditisacting asanenablerofdifferente-commerceonlineplatforms.Thisdevelopmentis advancedthoughtheComandiaplatformcreatedbythegroup.Comandiaprovides boththeexpertiseinmarketinganddesigningandthelogisticsnetworkfordeliveringproductstosmallandmediumenterprises(SMEs)thatdecidetocreatetheir e-commerceplatform.Onlythefuturewilltellifthiseffortofcreatingstrategic partnershipswiththeonlineworldwillaffectsigni ﬁcantlythesourcesofrevenueof theGroup.

InTable 3 wesummarizethepresentstrategicpositioningofthese ﬁveEUPOs alongsomeofthedimensionweexplored.

Inconclusion,followingprimarilyoneofthetwolinesofreactionwesummarily sketched,andoftenmixingthem,these ﬁvemajorEUPOshavebecomerelevant digitalplayersintheircountries.However,notwithstandingthedifferencesamong countries,noPOhas,atleastsofar,managed,orevenonlyattempted,tocompletely shifttowardan “onlineonly” or “onlinemainly” businessmodel.

Table3 Strategicpositioningof ﬁvemajorEUpostaloperators

5PostalOperatorsasGround-BasedOnlinePlatforms

Theonlineworldisaffectingtheofﬂineworldandchangingit,butalsotheopposite istrue.Deliveryofgoodsacquiredonlinestillrequiresaphysicallocation.Most services,notwithstandingthepossibilityofanimportantonlinephase,requirea personalcontact.E-government,whileasigniﬁcantinstrumentforimprovingthe relationbetweencitizensandthestate,stillhasalimitedreach,becauseofafrequent lackofadequatelevelsofdigitalliteracyinthepopulation.

Recallingherethebasisofmostonlineplatforms’ businessmodelscanbeuseful. Primarily,onlineplatformshavebuilttheirsuccessonastablecorecomponentplus asetofgrowingcomplementarycomponents.Theseadditionalcomponentsareoften thebasisforthevaluecreationbytheplatform.Theessentialingredientinplatforms istheexploitationofnetworkeffects.Indirecteffectsareessentialforthe “forfree” businessmodel,butdirecteffectsarealsodecisivefactorsforacquiringcustomers andmarketshares.Moreover,anonlinebusinessmodelrarelyisdevelopedorfully implementedwithinasingle ﬁrm,butisgenerallypartofalargerecosystem.6 Most successfulplatformsarebuiltonagreements,standardsandrulesthatdeﬁnehowthe variousparticipantsinteractintheirrelationswiththecustomers.Theseagreements maybelimitedtointeroperabilitybutmayalsoproposehigherdegreesofintegration,normallymakelargeuseofcommondataandoftenrequireastrongcommitmenttoopennesstowardthirdparties.

ThekeyquestionweaddresshereisifPOscould findawaytocontinuetheir evolutiontowardamoredigitalbusinessmodelandatthesametimehelpfosterthe digitaltransitionofoursocieties.Withregardtocomplementarity,itis firstworth askingwhetherPOs’ peculiarphysicalpresencecanplayanyspecificsignificant role.Similartoothertraditionalnetworkindustries,thepostalmarketischaracterizedbyaverystrongphysicalelement,butthishasapeculiarprevailinghuman characterization.POshistoricallyofferadeliveryserviceofaproductthatis tangible,physicallyconsignedbytheclienttoanemployeeofthePOandthen deliveredbyanotheremployeetotherecipient.Moreover,postofficesarespread widelyand,therefore,areapresencewithinlocalcommunities.Beitincitiesorin ruralareas,onecantakeitforgrantedthatheorshecan findanearbypostoffice. Coherentlywiththemissiontodelivertheitemsfromonecostumertotheother,and becauseoftheirubiquitousphysicalpresence,postaloperatorshaveaverylarge numberofemployeesandvehiclescontinuouslyatwork.Thisphysicalpresence, withaprevailinghumancharacterization,couldcertainlycomplementothercharacteristicsofonlineplatforms.

Theotherfundamentalcomplementaritybetweenphysicalandonlinepresences, isthedifﬁcultsearchforanadequateleveloftrustforonlinetransactions.Theonline environmenthasastructuralelementofanonymityandalackofpersonalizationthat

6 Probably,Appleisthemostimportantexampleofanoriginallyclosedplatform/company,butthe developmentoftheApplestoreshowsthatglobalsuccessanywayrequiresanincreasingdegreeof opennessandinteractionwithotherplayers.

somehowlimitstheabilityofcitizenstohavefullconfidenceinthegoodand servicesprovided.Clearlyonlineserviceshaveradicallychangedourhabitsand simpli fiedourdailylife,however,manyusersstilldonotfullytrustonlineplatforms. Thereisanoverallsuspicionofinsufficientprotectionofpersonaldata;onthisissue, itwillbeinterestingtoseewhetherthenewGDPRregulationinEuropewillhavea trueimpact.Theeasyandoften “forfree” businessmodel,typicaloftheonline world,hidesbehaviorscontrarytoconsumers’ interestsandprotection.Aspeci fic twistofthisargumentisthatallthecurrentInternetgiantsemergedinnon-EU countries,buttheyarenowfacingsignificantandincreasingtroublesinbecoming trulycompliantwithEUrules.Theissueisimportantifonethinkstomajorthemes suchasworkers’ rights,taxation,privacy,anddataprotection.

Carefullyconsideringalltheseelements,importantforthesuccessbutalsothe limitationsofonlineplatforms,suggeststhatnoneofthemappearsalienoropposite toPOs’ characteristics.Wherethephysicalelementplaysarole,POshavethe advantageoftheirstrongreputationbuiltontheirdirectpersonalcontactwith customers,oftenendingupinplayingasocialrolewithincommunities.

DosomeoftheirpeculiaritiesimpedetoPOstoevolveandbecomethemselves typicalonlineplatforms?Probablyyes.ComparedtoexampleslikesGoogleor Uber,aPOisverydifferent.Thephysicalelementanddifferencesinturnoverper employeeandworkingconditionssignalapermanentandstructuraldiversity betweenpostaloperatorsandanynormalonlineplatforms.Butthesesamedifferencescouldalsoconstitutethespeci ﬁcadvantageandopportunityforpostaloperators.Canonlineplatformsproductivelyuseofthesetypeofassets?Whichofthem wouldrepresentatrueaddedvalue?

Thereislittledoubtthatphysicalpresenceandconsumers’ trustcouldbekey addedvaluesformanyonlineactivities.Postaloperatorscouldbecome “groundbased” platforms,ananchorforonlineplatformsforahostofactivities.These includegovernmentservices,digitalidentities,insurance-ﬁnance-banking,telecommunicationproducts,andticketsellingforevents.Lessfamiliarexamplesinclude pollutionmeasurementandassistancetooldpeople.

Onlinepostalplatformscouldbecomeasortof “GoogleHome” butforthe outside.Theycouldbecomea “personallifeassistant” forcitizensimpactedbythe digitaltransformation.Especially,consideringtheirlocalpresence,POscanbeof extremehelpinthedigitaltransitionphase.SomeinitiativesofEUPOs,whichwe mentionedinprevioussections,areclearexamplesthatthisevolutionisnotonly possiblebuthasalreadystarted.

Inanutshell,astrategyforPOswouldbetoidentifythekeyelementsthatcan leadtothecreationofasuccessfulonline/ofﬂinepostalplatform.Thisopportunity couldbepursuedinpartnershipswithnativedigitalcompanies,arouteprobably easierthanhavingPOsreinventingthemselvesasglobalcompetitorsinthedigital ecosystem.Thisstrategywouldrequireexploitingallthepossibleadvantagesof openingapostaldigitalplatform,seekingtobecomepartofanecosystem,and developingitincollaborationwithmanypartners.Thiswouldalsorequireasearch forthirdpartiesthatcarryinnovationandideasthatPOshavenotconsidered,and especiallytobeopentoallkindsofpotentiallysuccessfulprojectsthencanincrease

thesizeandvalueoftheirbusinesses.Thiswouldentailrisksharingwithprivate companiesand,especially,localstart-upsdedicatedtoimmediatecitizens ’ needs.

ThispotentialnewbusinessmodelwillhavetobeconsistentwiththecurrentEU regulatoryframework,bothspeci ﬁcpostalsectorregulationandregulationinother relevantsectors,forexample,dataprotection.Therelationbetweenthisenhanced roleofPOsandthetraditionalUniversalServiceObligationsstillwouldneedtobe explored,butitismostlikelythattheUSOroleandthenewroleofPOswouldnot conﬂictbutcouldeasilyintegrate.

6Conclusion

Inthepast10–15years,theInternethasseverelyimpactedthepostalanddelivery market.Thevolumeofletters(advertisingandbillsincluded)dropped,demandfor parceldeliveryincreased,andcostumers’ needschanged.Ashighlightedinthelatest editionsoftheConferenceonPostalandDeliveryEconomics,POshaveupdatedand readdressedtheiroffersandtheirqualityofserviceasdeliverycompaniesandhave starteddiversifyingtheirbusinessestowardadjacentmarkets.

Whenconnectivity,technologicaldevelopmentanddigitalizationstartedto impactconsumers’ habits,thepostalsectorprovedabletoreactandshoweda surprisingresiliencewhenfacingthedigitaltransformation.Thisrapidresponse mightberelatedtothefactthat,asmentionedabove,e-substitutionofmailswasone ofthe firstservicesusersprofitedfromonalargescale.However,thecauseofthe resiliencerestsinthequitewisebusinessapproachofthepostalsector,which understoodthedisruptionandnon-reversibilityofdigitalizationandoptedforan immediateandgeneralefforttoadapt.Theresponseofthepostalsectorhasbeento employdifferent,butnotnecessarilyconflicting,strategies:improvementofexisting products,introductionofnewpostalservices,acquisitionofstrategiccompaniesand assetsandbusinessdiversification.

Probablytoday,itispossibletoopenanewphase.Inthischapter,weaskifthe timeisripeforafurtherstepaheadforPOs.Thespeci ficcharacteristicofwidespread physicalpresenceandconsumers’ trustofthePOs,i.e.onceagainbuildingontheir legacyassets,canleadtoanewstrategythatfullyintegratestheminthedigital world.POscouldbecomenew,sophisticatedbutground-baseddigitalplayers.In frontoftheadvancingdigitalrevolution,POscouldredefinethemselvesasanew typeofonline-offlineplatformsthatcanaccompanythechange.Thismayfacilitate thedigitaltransitionforconsumersandcitizens,contributingtotherealizationofa morehumandigitalecosystem.

References

Asher,D.,Callan,J.,&Marsh,B.(2011).Thepostalserviceroleinthedigitalage-expandingthe postalplatform.In 19thConferenceonPostalandDeliveryEconomics

Borsenberger,C.,Joram,D.,Klargaard,O.,&Régnard,P.(2016).Personaldataandprivacyissues andpostaloperatorsstand.In Thefutureofthepostalsectorinadigitalworld.Berlin, Germany:Springer.

Borsenberger,C.,Klargaard,O.,&Régnard,P.(2017). Digitalidentities:Agoodmoveforpostal operators.Berlin,Germany:Springer. CopenhagenEconomics.(2018).Maindevelopmentsinthepostalsector2013–2016:Preliminary ﬁnding,studyfortheEuropeanCommissionDirectorateGeneralforInternalMarket,Industry, EntrepreneurshipandSMEs.

DeutschePostDHLGroup.(2017).2016AnnualReport. DeutschePostDHLGroup.(2018).2017AnnualReport. EuropeanCommission.(2016).CommunicationtotheEuropeanParliament,theCouncil,the EuropeanEconomicandSocialCommitteeandtheCommitteeoftheRegions,OnlinePlatforms andtheDigitalSingleMarketOpportunitiesandChallengesforEurope,SWD(2016)172 ﬁnal. Finger,M.(2014).Postaloperatorsasinformationintermediaries. ThePostalIndustry Innovation andMarkets,2(2). GrupoCorreos.(2016).IntegratedAnnualReport.

Jaag,C.,ParraMoyano,J.,&Trinkner,U.(2016).Postalstrategiesinadigitalage.In Thefutureof thepostalsectorinadigitalworld.Berlin,Germany:Springer. Jaag,C.,Stahl,F.,&Stroelin,B.(2011). CommercialandregulatoryaspectsofreverseHybrid Mail (SwissEconomicsWorkingPaper). LeGroupeLaPoste.(2017).RegistrationDocument2016. Parcu,P.L.,&Silvestri,V.(2017).Lessonsfromthepostalsectortotelecommunicationsandvice versa.InM.Crew,P.L.Parcu,&T.Brennan(Eds.), Thechangingpostalanddeliverysector Berlin,Germany:Springer. Parker,G.,&VanAlstyne,M.(2011). Adigitalpostalplatform:Deﬁnitionsandaroadmap Cambridge,MA:TheMITCenterforDigitalBusiness. PosteItaliane.(2017).AnnualReport2016. PosteItaliane.(2018a).CapitalMarketsDayDeliver2022(presentation). PosteItaliane.(2018b).FinancialDatabase2017. RoyalMailplc.(2017).Annualreportand ﬁnancialstatements2016–17. Sheedy,C.,&Moloney,M.(2015).Digitalinclusion:Aroleforpostaloperatorsinasmartworld. In Postalanddeliveryinnovationinthedigitaleconomy, Topicsinregulatoryeconomicsand policy.Berlin,Germany:Springer. UniversalPostalUnion.(2010). post – Thenextgenerationpostalnetwork.

InducingOptimalQualityUnderPrice Caps:Why,How,andWhether

TimothyJ.Brennan

1IntroductionandOverview

Awell-knownresultisthatwhileamonopolysetspriceabovethesociallyoptimal level,itmightalsosetqualityaboveitsoptimallevel(Spence, 1975).Inthepostal context,qualityreferstonon-priceaspectsofservicesuchasfrequencyofdelivery (3-day,5-day,6-day)andspeed(nextdaydelivery,deliveryin2days,etc.).Because increasingqualityincreasesthepriceatwhichamonopolycansellitsproduct,it couldobtainmoreinproﬁtfromincreasingqualitythanconsumersgaininsurplus.It followsthatthelevelofqualitychosenbyamonopolistunderpricecapregulation (PCR)couldalsobegreaterthantheoverallsocialoptimum,whenpriceissetat marginalcost(atthatlevelofquality)aswell.

Adisclaimer:IsubmittedadeclarationforthePublicRepresentativeoftheU.S.PostalRegulatory Commission(PRC)onadjustingpostalrateswhendemandfalls,foraPRCproceedingreviewing thestatutorypricecapframeworkforregulatingratesformarketdominantservices.Theviews expressedhereareminealoneanddonotreflecttheviewsofthePublicRepresentativeandanyof itsotherconsultantsonwhetherorhowtoadjustregulatedratestoinducequalityimprovements.I thankparticipantsintheAdvancedWorkshopinRegulationandCompetitionparticipantsatthe CenterforResearchinRegulatedIndustries(CRRI)inJanuary2018.Iamalsogratefulfor commentsandobservationsfromBrunoBasalisco,A.ThomasBozzo,VictorGlass,Cynthia SanchezHernandez,MartenOvaere,PierLuigiParcu,EdwardPearsall,andotherparticipantsin the26thPostalConferenceandtheCRRI37thAnnualEasternConference.Iespeciallyappreciate DavidSappington’shelpin findingearliermentionsofsomeofmy findingsonsuboptimalquality underprice-capregulationhere,asIwassuretheymusthavebeenfoundbefore.Responsibilityfor errorsremainsminealone.

T.J.Brennan(*)

SchoolofPublicPolicy,UMBC,Baltimore,MD,USA

e-mail: brennan@umbc.edu

P.L.Parcuetal.(eds.), NewBusinessandRegulatoryStrategies inthePostalSector,TopicsinRegulatoryEconomicsandPolicy, https://doi.org/10.1007/978-3-030-02937-1_2

However,thequalitylevelchosenbyaPCRmonopolististoolowataregulatory pricecap,whichwilltypicallybesetabovemarginalcost.A ﬁrmunderPCRwillset qualitytomaximizeproﬁtsfromincreaseddemandforitsproduct,butwillnottake intoaccounttheincreaseinsurplustoinframarginalbuyers(Sappington, 2005 at 131,n.18).Thisresultalsoappliestoanunregulatedmonopolist,inthatitwillset qualitytoolowrelativetowhatwouldbeoptimalatthemonopolyprice,evenifthat qualitylevelmaystillexceedwhatisoptimalwhenpriceequalsmarginalcost.

Intuitively,increasingapricecapshouldincreasequality,becausewithhigher marginsthePCR firmcancapturemoreofthebenefitsfromincreasingquality (Weisman, 2005).Thissuggestsapossibletrade-offbetweenpriceandquality, wherethegainsfromhigherqualitycouldoutweighthewelfarelossesfromthe higherprice.Ifaregulatorcannotobservequalitydirectly,itmaybeabletoincrease consumerwelfarebyraisingthepricecap.Unfortunately,apositiveassociation betweenthepricecapandservicequalitydoesnotholdingeneral.Moreover,there appearstobenoeffectivemeansforaregulatortogivethe firmtheappropriate incentivestooptimizequalitywithoutrequiringenoughcostinformationthatit couldjustsettheoptimalpricewithoutrelyingonPCRtoinduceefficientproduction (Brennan, 1989).

Thischaptersetsoutthesetheoreticalprinciplesandinvestigateswhetheritis possibletoincreasewelfarebyincreasingthepricecapand,ifso,whatconditions arenecessaryforthattooccurandwhatinformationtheregulatorwouldneedtosee iftheyaresatisfied.Section 2 ofthischapterpresentspostalpolicymotivationsfor searchingforregulatorysolutionstotheproblemofsuboptimalquality.Section 3 reviewsthetheoryrelatingtotheincentivesofprice-capped firmstosetqualityand thereasoningbehindtheclaimthatamonopolymightprovideahigherlevelof qualitythanwouldbeoptimal.Bothoftheseserveasbackgroundforthe findingsin Sect. 4 thataprice-capped firm,andamonopoly,willprovidetoolittlequality relativetothequalitythatwouldbeoptimalatthepricestheycharge.

Section 5 brieflyexamineswhyincreasingapricecapneednotleadtohigher quality.Theintuitionisthatifthosewithlowwillingnesstopayareparticularly sensitivetoquality,itmaybeworthittoattractthembyincreasingqualityundera lowpricecap,butnotifthe firmcanchargehigherprices.Section 6 findsthatifthe regulatorknowsthevalueofquality,itcanprovideincentivestothe firmtoproduce optimalquality butonlyifthe firmcapturestheentireconsumersurplusfrom qualityimprovements.Otherlegalandpoliticalconsiderationssuggestthathaving theprice-capregulated firmanditsregulatornegotiatequalitystandardsandpenaltiesfornon-compliancemayleadtoareasonableagreementandbethebestwecan expecttodo.Section 7 summarizesandconcludes.

2PostalPolicyMotivations

In2006,theUnitedStatesenactedthePostalAccountabilityandEnhancementAct (PAEA).1 Amongotherthings,PAEAbifurcatedU.S.PostalService(USPS)offeringsinto “marketdominant” and “competitive” categories,andmandatedthatthe PostalRegulatoryCommission(PRC),USPS’sregulator,usea “modernsystemfor regulatingrates” tosetpricesfortheformer.2 This “modernsystem,” essentially PCR, ﬁxedratesformarketdominantservicesin2006,adjustedupwardbythe percentageincreaseintheU.S. “ConsumerPriceIndexforAllUrbanCustomers,” abbreviatedasCPI-U.

Thisisessentiallyaformofprice-capregulation(PCR),whichtypicallyincludes agenerallyupwardadjustmentfollowingsomepriceindexandadownwardadjustmentallowingforexpectedincreasesinproductivity(Littlechild, 1983;Brennan, 1989).Thisexpectedproductivityfollowsfromthemotivationforpricecaps ifa regulated firmbelievesthatitwillretaincostreductionstheregulatorwillnotforceit toadjustpricestomatchthosereductions,itwillhaveanincentivetoproduce efficientlyratherthanwastefully.PCRleadstheregulated firmtoactasaprice taker,givingitthesameincentivetominimizecostsasdocompetitive firms,andthe Xfactorreflectsanaspirationtoshareexpectedcostsavingswithbuyersofthe regulatedservice.3 Forthisreason,PCRisoftenreferredtoasCPI–X;forUSPS, PAEAdidnotincludeanXfactor,effectivelysettingitequaltozero.

Inlate2016,thePRCinstitutedareview,mandatedbyPAEA,ofhowwellthis “modernsystem”,thatis,PCRformarket-dominantservices,isworking.4 Oneof thecriteriaforsuchreviewwas “tomaintainhighqualityservicestandards establishedundersection3691.”5 Initssolicitationofcomments,thePRCproposed apreliminarycriterionforservicequalityaswhena “system[of “modernregulation”,thatis,PCR] ... isdesignedforthePostalServicetoconsistentlyachieve,for eachclassofmail,stateddaystodeliveryatadesiredtargetrate.”6 Intheorderit

1 Pub.L.109-435(2006).

2 39U.S.Code §3622(d)(1)(A).

3 Ifdemandincreases,theregulated firm’sprofitswilltypicallyincrease,aspriceforregulated firms generallyexceedsmarginalcost.Ifincreasesindemandareexpected,theXadjustmentcouldbea waytosharethoseprofitswithbuyers.BrennanandCrew(2016)exploredhowaregulatorcould increaseapricecaptopreventdecliningdemandfromreducingprofits;thesameadjustmentwould reducepriceswhendemandincreases,sharingaccompanyinghigherprofitswithcustomers.

4 39U.S.Code §3622(d)(3).

5 39U.S.Code §3622(b)(3).The §3691referenceistoapartofthestatuterequiringUSPS,with PRCconsultation,toinstituteservicestandardsthat “enhancevalue,”“preserveaccess,” and “reasonablyassurePostalServicecustomersdeliveryreliability,speedandfrequency.” 39U.S.Code §3691(b)(1)(A)-(C).

6 PostalRegulatoryCommission, AdvanceNoticeofProposedRulemakingontheStatutoryReview oftheSystemforRegulatingRatesandClassesforMarketDominantProducts,OrderNo.3673, DocketNo.RM2017-3(Dec.20,2016)at5.ThisistheproceedinginwhichI ﬁleddeclarationsfor thePRCPublicRepresentativeonadjustingpriceswhendemanddeclines,mentionedintheabove

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The Project Gutenberg eBook of Sailing ships

This ebook is for the use of anyone anywhere in the United States and most other parts of the world at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this ebook or online at www.gutenberg.org. If you are not located in the United States, you will have to check the laws of the country where you are located before using this eBook.

Title: Sailing ships the story of their development from the earliest times to the present day

Author: E. Keble Chatterton

Release date: April 25, 2024 [eBook #73464]

Language: English

Original publication: London: Sidgwick & Jackson, ltd, 1909

Credits: Peter Becker, John Campbell and the Online Distributed Proofreading Team at https://www.pgdp.net (This file was produced from images generously made available by The Internet Archive)

TRANSCRIBER’S NOTE

Footnote anchors are denoted by [number] , and the footnotes have been placed at the end of the book.

New original cover art included with this eBook is granted to the public domain.

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SAILING SHIPS

THE STORY OF THEIR DEVELOPMENT FROM THE EARLIEST TIMES TO THE PRESENT DAY

E. KEBLE CHATTERTON

ILLUSTRATIONS

WITH A HUNDRED AND THIRTY

LONDON

SIDGWICK & JACKSON, LTD.

3 ADAM STREET, ADELPHI, W.C.

IN PIAM MEMORIAM

PATRIS DILECTISSIMI

QVI ME

AD MARIS NAVIVMQVE

STVDIVM

PRIMVS EXCITAVIT

PREFACE.

This history of sailing ships has been written primarily for the general reader, in the hope that the sons and daughters of a naval nation, and of an Empire that stretches beyond the seas, may find therein a record of some interest and assistance in enlarging and systematising their ideas on the subject, especially as regards the ships of earlier centuries. It is not necessary to look far—no further than the poster-designs on advertisement-hoardings—to observe the errors into which our artists of to-day are liable to fall owing to lack of historical knowledge in this subject; and to put (for instance) triangular headsails with a rectangular sail on the “bonaventure mizzen-mast” of an early sixteenth-century ship, is an inaccuracy scarcely to be pardoned.

Quite recently one of the chief librarians in one of our biggest national treasure-houses informed me that when an artist, who had been commissioned to illustrate a certain work, came to him for guidance as to the ships of a recent period, he was at a loss where to lay his hands on a book which should show him what he wished to know by picture and description. Only after much search was the requisite knowledge obtained.

I trust that both the yachtsman and sailorman will find in these pages something of the same exciting pleasure which has been mine in tracing the course of the evolutions through which their ships have passed. Those whose work or amusement it is to acquaint themselves with the sailing ship and her ways, and for lack of time and opportunity are unable to seek out the noble pedigree of what Ruskin truly described as “one of the loveliest things man ever made, and one of the noblest,” may care to learn what were the changing conditions which combined to bring about such a highly complex creature as the modern sailing ship. Perhaps at some time when handling a rope, a spar, a tiller or a sail, they may have wondered how it all began; what were the origins of all those various parts of a ship’s “furniture”; why some essential portions have scarcely changed; and how other portions are the outcome of time, experiment, and science. I hope that to neither the amateur nor the professional sailor I shall seem impertinent if I have attempted to tell them something about their ship which they did not know before. But if, on the other hand, I shall have succeeded in increasing their love for the sailing ship by outlining her career, I trust that this may be allowed to counterbalance the defects which, in a subject of so vast a scope, are hardly to be avoided in spite of considerable care and the generous assistance of many kind friends.

Finally, I make my appeal to the younger generation, to whom ships and the sea have in all times suggested so much that is bound up with adventure and brave deeds. The present moment sees us at a stage in the history of ships when the Royal Navy as a whole, and the Merchant Service almost entirely, have no longer any convenience for sail. There is a dire need in the latter for both officers and men, whilst on shore the conditions of employment are

exactly the reverse. Surely it is only by a mutual adjustment of the two that both problems, on sea and land, can possibly be overcome; and it is only by winning the enthusiasm of the boy who is to become father of the man that the sailor’s love for the sea can be handed on from generation to generation. We have received from our ancestors a splendid heritage, a unique legacy—the mastery of the seas. That legacy brings with it a commensurate responsibility, to retain what our forefathers fought for so dearly. Perhaps to the healthy-minded Anglo-Saxon boy, not yet too blasé and civilised to feel no thrill in reading his Marryat, Cook, Ballantyne, Henty, Fenn, or the glorious sea-fights and discoveries in history itself—perhaps to him this book may be of some assistance in visualising the actual ships of each historical period.

I desire to return thanks to many who, from motives of personal friendship or of love for ships, have so readily lent me their assistance in the course of this work. If I have omitted to include the names of any to whom my obligations are due it is from no sense of ingratitude. Especially I am anxious to return thanks to Dr. Wallis Budge and Mr. H. R. Hall of the Egyptian Department of the British Museum, as well as to the officials in other departments of the same institution, particularly those of the Coin Room, the Print Room, the Manuscript Room, Greek and Roman Antiquities, and British and Mediæval Antiquities: to Mr. Clifford Smith of the Victoria and Albert Museum, South Kensington, and to Mr. R. C. Flower of the Public Record Office for assistance in research: to Dr. Hoyle of the Manchester Museum for permission to use photographs of two Egyptian models: to the Board of Education for permission to reproduce photographs of models in the South Kensington Museum: to the Curator of the Royal Naval College Museum, Greenwich, for granting special facilities for studying the collection of models: to the British Consul at Christiania, for assistance in obtaining photographs of Viking ships: to M. Ernest Leroux for permission to use the illustration of the navis actuaria found on the Althiburus mosaic: to the Elder Brethren of Trinity House, jointly with Messrs. Cassell and Co., for allowing me to reproduce Phineas Pett’s Royal Prince: to the Committee of the Royal Victoria Yacht Club, Ryde, for permission to reproduce Messrs. West’s photograph of the rare print of the Alarm,

Fig. 113: to Captain Roald Amundsen for the plans of the Gjöa: to the authorities of the British Museum for many illustrations either sketched, photographed, or reproduced from their catalogues: to Lieut.-Colonel A. Leetham, Curator of the Royal United Service Museum, Whitehall, for permission to photograph models and prints: to Captain C. E. Terry for the illustration of the Santa Maria: to Mr. A. E. M. Haes for the photograph of the Oimara: to Messrs. Camper and Nicholsons, Limited, for the plans of the yacht Pampas: to Messrs. White Brothers for the lines of the yacht Elizabeth: to Messrs. Fores for the illustrations of the Xarifa and Kestrel: and to Mr. H. Warington Smyth for the Nugger in Fig. 8, the two illustrations of Scandinavian and Russian ships in Figs. 30 and 31, and the American schooner in Fig. 91. I wish also to acknowledge Mr. Warington Smyth’s extreme courtesy in offering to allow me to use any of the other sketches in his delightful book “Mast and Sail in Europe and Asia,” and only regret that circumstances prevented my being able to avail myself more fully of so generous an offer.

The illustrations in Figs. 26 and 27 appear by arrangement with Mr. John Murray: Fig. 51 by arrangement with the Clarendon Press, Oxford: and Figs. 30, 31, 87-90, 92, 93, 95, 102, 104, 106, 111, 112, 114, 115, and the Plans, by arrangement with the editor of The Yachting Monthly. Thanks are also due to two artists skilled in marine subjects—to Mr. Charles Dixon for his two pictures in colour, at once lively and accurate; and to Mr. Norman S. Carr, not only for the initial letters of the chapters, but for thirty or more sketches specially drawn for this book.

Finally, I have to express my thanks to Mr. John Masefield, who has been kind enough to read the proofs, while the book was passing through the press, and to give me the benefit of his valuable advice.

E. KEBLE CHATTERTON.

June 1909.

ERRATA

P. 60, line 8, for “with three reefs already taken in” read “close-reefed.” (Fig. 13 shows three turns taken with the brails or bunt-lines, so as to make a close reef.)

P. 86, line 18, for “tilt” read “rake.”

P. 199, line 1, for “foremast” read “foresail.”

” line 15, for “bill-hooks” read “shear-hooks.”

” line 32, for “anchor” read “a foul anchor.”

P. 203, line 19, for “face” read “case.”

P. 214, line 34, for “bill-hooks” read “shear-hooks.”

P. 262, line 3, after “driver” insert “or spanker.”

P. 275, line 15, for “iron” read “wire.”

” line 17, for “braces” read “brace-pendants.”

I I

II. E E S 6000 ..

III A S P, G, R

IV. T E S N E

V. T D S S E C Y 1485

VI. F H VII. D E (1485-1603)

VII F A J I C E C

VIII T S S N T

IX. T F-- R D; C, F B, Y, .

LIST OF ILLUSTRATIONS.

A Seventeenth-century English Warship To face title-page From a painting by Charles Dixon. Hay-Barge Headpiece to Preface

by N S Carr

“Jaegt”

3. Egyptian Ship of about 6000 B.C. 22

From an amphora found in Upper Egypt, and now in the British Museum (Painted Pottery of Predynastic Period, Case 5, No. 35324).

4. Egyptian Ship of the Fifth Dynasty 30 From wall-paintings in the Temple of Deir-elBahari.

5 and 6 Model of an Egyptian Ship of the Twelfth Dynasty To face 34

From a tomb at Rifeh, excavated 1906-7. Photographs by courtesy of Dr. Hoyle, Director of the Manchester Museum, where the model is preserved.

7 Egyptian Ship To face 40 From wall-paintings in the Temple of Deir-elBahari.

8 An Egyptian Nugger 43 Sketch by H Warington Smyth; from his “Mast and Sail,” by courtesy of the author and Mr John Murray. 9 Phœnician Ship

From a coin of Sidon, c 450 B C , in the British Museum Twice the actual size

10. Phœnician Ship 54

From a coin of Sidon, c 450 B C , in the Hunterian Collection, Glasgow Twice the actual size

11. Greek Ship 58

From a Bœotian fibula of the eighth century B.C., in the British Museum (First Vase Room, Case D, No 3204)

12. Greek War Galley 59

From a vase of about 500 B.C., in the British Museum (Second Vase Room, Table-case H, No. B. 436).

13. Greek Merchantman 61 From the same vase.

14 Stern of a Greek Ship 64

From a coin of Phaselis, of about the fifth century B.C., in the British Museum (Greek and Roman Life Room, Case 1, No. 36). Twice the actual size.

15 Boar’s-head Bow of a Greek Ship 64

From the same coin Twice the actual size

16. The Ship of Odysseus 66

From a Greek vase, c 500 B C , in the British Museum (Third Vase Room, Case G, No E 440)

17. Terra-cotta Model of a Greek Ship 68

Model of the sixth century B.C., in the British Museum (Greek and Roman Life Room, Case 53, No A 202)

18. A Coin of Apollonia, showing Shape of Anchor 72 Coin of about 420 B.C., in the British Museum (Greek and Roman Life Room, Case 2, No. 21). Twice the actual size.

19. A Roman Warship 73

From Lazare de Baïf’s “Annotationes ... de re navali,” Paris, 1536, p. 164.

20 Roman Ship 75

From the same book, p. 167.

21. Roman Merchant Ships To face 80

From a relief, c 200 A D

22. Roman Ship entering Harbour 82

From an earthenware lamp, c. 200 A.D., in the British Museum (Greek and Roman Life Room, Case 53, No. 518).

23. Fishing-boat in Harbour 83

From another lamp, as the last.

24 Navis Actuaria 87

From a recently discovered mosaic at Althiburus, near Tunis; reproduced by kind permission from M. Leroux’ “Monuments et Mémoires,” Paris, 1905.

25 The Viking Boat dug up at Brigg, Lincolnshire To face 96

From a photograph, taken during its excavation in 1886, and supplied by Mr. John Scott, of Brigg.

26 Ancient Scandinavian Rock-carving 111

From Du Chaillu’s “Viking Age,” by courtesy of Mr John Murray

27. Viking Ship-form Grave 114

From the same

28. The Gogstad Viking Ship To face 118

From a photograph by O. Voering, Christiania.

29 The Gogstad Viking Ship To face 120

From a photograph by O. Voering, Christiania.

30 Norwegian Ship 120

From a sketch by H Warington Smyth, by courtesy of the artist

31. Russian Ship 121

As the last

32. Harold’s Ships; from the Bayeux Tapestry To face 134

From a photograph of the replica at South Kensington.

33. William the Conqueror’s Ships; from the Bayeux Tapestry 136