Bad Policy, Pure and Simple
March 22, 2004
Anticompetitive behavior by the Postal Service is more harmful to consumers, competitors, and the overall economy than most private sector mergers.

The Department of Justice announced a few weeks ago that Oracle's takeover of PeopleSoft violates antitrust law, stating that "we believe this transaction is anti-competitive—pure and simple." Ironically, in the same week the Supreme Court, in United States Postal Service v. Flamingo Industries, decided that the massive United States Postal Service is exempt from all antitrust laws. Yet anticompetitive behavior by the Postal Service is more harmful to consumers, competitors, and the overall economy than most private sector mergers.

The Postal Service enjoys a government-enforced monopoly over the delivery of all letters. Yet it competes in a wide and increasing array of businesses in which private firms are already active, including package and express delivery; it has recently ventured into selling a variety of retail merchandise and e-commerce services (most of which are unrelated to postal services).

A major concern is that the Postal Service will use funds from monopolized delivery services, where it holds customers captive, to underprice in businesses where it faces competition. Given that the final authority to set rates rests not with its regulator, the Postal Rate Commission, but with the Postal Service itself, that fear is justified. Moreover, the best available estimates (given the Postal Service's poor accounting data) indicate that it has earned losses on many products where it faces competition. Underpricing is thus nearly a certainty.

Various other concerns have arisen about the Postal Service's competitive activities. In addition to monopoly power, it is exempt from all taxation. It can borrow from the Treasury at government-guaranteed rates. It has the power of eminent domain and is excused from SEC disclosure requirements. It is not required to pay parking tickets or registration fees on its vehicles. It is immune from antitrust laws and is not subject to Federal Trade Commission truth-in-advertising regulations, meaning that it can assert anything it wishes in ads.

All those valuable government-bestowed privileges allow the Postal Service to inefficiently and unfairly compete with private firms. The Postal Service is able to force private firms out of business by virtue of its special privileges, rather than through superior management acumen, better labor relations, or indeed any business-related skills. It can offer any competitive service it wishes at any time at any price without any regulatory oversight whatsoever.

This is bad policy. Consumers will be hurt because the costs of those ventures will be passed on to them through higher rates in monopolized activities and because they will face less choice after the Postal Service has forced competitors out of business. Competitors will go out of business, shrink, or not start up in the first place in the face of unfair competition from the Postal Service. Finally, state and local governments will lose tax revenue when the Postal Service forces out taxpaying businesses.

The executive and legislative branches should act. The Postal Service ought to be kept out of competitive activities entirely. Better still, it should be relieved of all government-granted privileges, including monopoly power. This situation is anticompetitive, pure and simple, and it should be changed.