Postage rates return to inflation cap–April 19, 2016

All U.S. market dominant postage rates adjusted downward by about 4 percent on Sunday, April 10. The adjustment was not a “price cut” as some media portrayed it, but a return to the Consumer Price Index (CPI) price cap regime that was enacted by Congress in 2006.

Price cap regulation is considered the best practice for monopolies that are granted by the government, replacing the previous “cost of service” regime that was in place from 1970 through 2006. Under cost of service, the regulated entity makes a case that it needs a certain amount of revenue to operate, and the regulator determines the appropriate cost of service and attendant prices to fund it.

Price cap enables monopolies to operate in a businesslike manner with strong incentives to control costs that are normally provided in the non-governmental sector by owners, shareholders, donors, competitors, and the treat of going out of existence.

The Postal Service has in fact taken out more unnecessary cost in the years it has operated under the price cap than it did under cost of service regulation, and it has more room to go. It is especially important that it has had this incentive at a time when volume has declined. In fact, for the last several years the USPS has been a case study of success in the regulation of a government monopoly.