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Report  |  March 2024

Critique of USPS Elasticities

By Nam D. Pham, Ph.D., Mary Donovan, and Stephanie Barello

The USPS has implemented higher and more frequent rate increases for market dominant mail to improve its financial position. Its demand model, which estimates the price sensitivity (elasticity) of market dominant products, is used to justify the rate increases. However, recent volume and revenue challenges signal an issue with the model. Our review of the USPS model revealed numerous shortcomings that hinder the model’s ability to project volume and justify ratemaking decisions that impact millions of Americans.