Deregulation and Internet : New challenges to postal services in Sweden

Abstract: The postal system is an old communication technology, now subject to internal competition from potential entrants and external from technological substitutes. This is a study of how the postal industry in Sweden responds to the dual challenge from deregulation and the Internet.The liberalisation process lasted throughout the 1990's. The role of actors for change is found to be crucial. The Post Office and the world's first new entrant on the postal market, City Mail, were the entrepreneurs working for change in the institutional framework. In the background were changing conditions in terms of increasing demand for postal services and a shift towards mass letters, technological improvements that made pre-sorting in computers possible and an ambiguous construction of the legal monopoly in Sweden. The most crucial issues after deregulation in 1993-94 have been access to common services and facilitates and the dominant incumbent's right to differentiate prices.The effects of the Internet and the use of e-mail on postal volumes are studied. Some substitution has already occurred and a further potential for it exists, particularly in certain segments like fmancial information. At the same time, communication in general is increasing, which appears to outweigh the negative effect on the demand for postal services. The evidence does not support the hypothesis of declining postal volumes.The effects on postal efficiency of the dual challenge are found to be positive but modest. The price structure has changed. The threat from the Internet has spurred some product innovation and strategic change whilst potential postal competition has been met by price adjustmentsand process innovation. The major effect is redistribution and the net effect on welfare is little. Owing to actual and potential competition, postal firms may not prosper in the future, but Post as a technology for communication probably will.