Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach

Yearbook of Antitrust and Regulatory Studies, Vol. 2012 5(7)

17 Pages Posted: 22 Jul 2013

See all articles by Dilyara Bakhtieva

Dilyara Bakhtieva

European Union - European Commission

Kamil Kiljański

European Union - European Commission

Date Written: July 21, 2012

Abstract

In network industries, a Universal Service Obligation (USO) is often seen as a burden on an incumbent, which requires compensation for the net cost of such service provision. This paper estimates the effects of consumer loyalty as an intangible benefit of USO in the postal sector. In doing so, the agent-based modelling (ABM) approach is applied, which makes it possible to model the behaviour of boundedly rational consumers and is thus particularly appropriate for taking into account intangibles considerations. The analysis shows that loyalty is crucial to whether the USO uniform pricing constraint results in loss-making or profitability. Under certain conditions and in the presence of a loyalty parameter, uniform pricing gives a USO provider an advantage, when the size of the rural area is sufficiently big and a disadvantage, if its size is too small. This finding is counterintuitive as USO providers in countries with sparsely populated areas are typically expected to incur a significant net cost of USO.

Keywords: agent-based modelling, liberalisation of the postal markets, postal sector, Universal Service Obligation (USO), USO provider

Suggested Citation

Bakhtieva, Dilyara and Kiljański, Kamil, Universal Service Obligation and Loyalty Effects: An Agent-Based Modelling Approach (July 21, 2012). Yearbook of Antitrust and Regulatory Studies, Vol. 2012 5(7), Available at SSRN: https://ssrn.com/abstract=2296674 or http://dx.doi.org/10.2139/ssrn.2296674

Dilyara Bakhtieva (Contact Author)

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Kamil Kiljański

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

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