The United States Postal Service beginning in May will undergo a dramatic change in the way it prices for packages. The current system charges postal customers based on the weights of the packages they are sending. The new system will introduce a system of rates based not on weight but rather on shape. The logic behind the idea is that charging based on shape will give a more accurate payment relative to the cost of mailing packages. The economic side of all this is that the post office will be essentially sorting its consumers, mainly in the form of businesses, and charging them prices based on the elasticities of their demand curves. For example, the company that needs (or doesn’t care/want to change) 9X12 envelopes instead of the cheaper standard #10 envelopes will be charged more than the more flexible/elastic company who shifts its mailing to adopt to the now relatively cheaper #10 envelopes. Another example in which sorting will occur is that under the new plan the second ounce of a first class letter will be cheaper than the first. Those companies that are more flexible and combine mailings will benefit in that they will receive a cheaper per ounce rate. At the same time the post office will identify the consumers with inelastic demand for strictly one ounce first class letters and charge them more per ounce than those willing to adapt to the new pricing. In these ways the new pricing scheme can be seen as second degree group pricing discrimination.
HW 2 Elite Economists (Melissa Berry, Pat Di Gregory, Patrick Giesecke, Jonathan Sutton)
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