The damaging effects of large postal service price increases on online retailers, consumers, and the United States Postal Service

October 2, 2020

In this analysis written for the Package Coalition, Debra Aron and Justin Lenzo quantify the effects of the President’s proposal to increase Postal Service prices for package delivery by a factor of four (or, 300 percent). The authors find that for reasonable assumptions about the reactions of UPS and FedEx, the Postal Service would lose its entire package delivery business to its competitors and to self-delivery by the large retailers. Consumers would pay between $7.86 and $16.95 more per package delivered to them, as a result of which they would reduce their number of purchases. Nevertheless, consumers would pay $473 billion to $865 billion more for the e-commerce purchases that they do make over the next five years.

Forcing the Postal Service to price itself out of the package delivery market would also deprive consumers of the unquantified benefits associated with a broader array of choices, and the social benefits associated with heightened incentives for innovation and efficiency driven by more robust competition.