Jul 11, 2022

Using the USPS Monopoly as an “Antimonopoly Tool” is a Bad Idea

Alden Abbott Senior Research Fellow, Andrew Mercado Research Assistant

Should the United States Postal Service (USPS) be enlisted as a trustbuster? Using it as an antimonopoly tool against Amazon, Walmart and the like, as proposed by Columbia Law School Professor Kathryn Judge, is a recipe for disaster.

Indeed, the USPS looks more like an out-of-control trust than a trustbuster. It has its own congressionally established monopoly on first-class mail. What’s more, according to prominent researchers, is that USPS is able to use profits from its legal mail monopoly to artificially subsidize its competitive package shipping service. Specifically, clever accounting allows it to charge some package shipping rates that are well below the rates charged by private firms, thereby distorting competition. USPS, which is not subject to the antitrust laws, can get away with this.

In particular, USPS carries out its subsidy scheme by allocating costs of its delivery infrastructure — trucks, sorting machines, employee salaries — to the monopoly side of the business and leaving the competitive side relatively cost free. Then, it sets the price of postage for packages at a level that allows for an on-paper profit, all while the first-class letter arm of its operation — shielded from market forces — is hemorrhaging money.

This is how, even when package revenue skyrocketed during the pandemic, the costs associated with delivering these USPS packages stayed exactly the same. More accurately, USPS is not appropriately measuring its costs.

This cross-subsidization has a substantial effect on the market. According to one fulfilment company, USPS shipping rates start at nearly 20 percent below the prices charged by its next closest rival, while offering the same delivery time. Although some defend the practice and assert that USPS operations are highly efficient and reflect its vast experience in delivering over 140 billion pieces of mail per year, this high number is incredibly misleading. USPS only delivered slightly more packages than its competitors in 2019. Additionally, it has missed its service performance targets since at least 2014. Costs for USPS have risen by billions of dollars and mail volumes have fallen precipitously, yet its prices are still significantly below those of its competitors.

Even though USPS package services are already being indirectly subsidized, Professor Judge has proposed directly subsidizing its operations to help small businesses afford postage. What Judge doesn’t consider, however, is that subsidizing small businesses’ USPS postage would waste taxpayer dollars on a problem that already has a solution. Customers already have alternatives such as Stamps.com to access highly discounted postage. These discounts of up to 26 percent on the USPS’s most popular package product, first-class package service, add up to significant savings. For overnight shipping, discounts from Stamps.com and the already discounted shipping from USPS add up to savings of up to 34 percent over competitors. Short of offering free shipping for small businesses, Judge’s proposal is unnecessary.

Additionally, government subsidies to particular competitors harmfully distort competition and should be avoided. The Organisation for Economic Co-operation and Development has specifically outlined harms to competition that occur when governments prop up state-owned businesses. It recommends enforcing laws and regulations against state-owned businesses just as vigorously as against private companies. This would mean subjecting USPS to federal antitrust laws and treating its clever accounting tricks as anticompetitive conduct.

The current administration, however, is unlikely to take such action. Congress has passed legislation to help USPS expand into non-postal services by partnering with local governments. The current bipartisan coalition seems keen to expand the USPS hold on postal services, not reduce it.

Further, the assertion that small businesses need help “competing” against huge retail platforms like Amazon and Walmart misses the bigger picture. Yes, these platforms produce and sell their own products, but it is a relatively small portion of their revenue. The lion’s share of their business is the sale and resale of other businesses’ products. Without access to products from small businesses, Amazon and Walmart would provide a vastly different and arguably inferior shopping experience.

Moreover, many small businesses benefit greatly from their access to big retail platforms. According to Jason Boyce, an author and businessman who sold on Amazon, small businesses see around 10 times more sales on Amazon than on all other platforms combined, including Walmart. Without these platforms and the access to customers they provide, many small businesses would likely cease to exist.

Federal officials should focus on dismantling real monopolies in the economy rather than targeting companies for being innovative, competitive, and, yes, successful. The fact that USPS is losing money every single year with the lowest cost packages on the market while Amazon runs a highly efficient logistics business should serve as a lesson. It might just be that a bloated government monopoly is able to learn a thing or two from the private sector about running an efficient logistics business.

Photo by Marcia Straub via Getty Images. 

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