Wednesday, March 28, 2012

Increase in Stamp Prices

For those not paying attention the price of stamps is going up as of the end of April. A first class stamp currently 46p is moving to 60p (a 30% increase) and second class from 36p to 50p (a 39% increase). How can they do this?

Price increases can occur for a variety of reasons the first being the simple 'law' of supply and demand - let's call it the auction effect. A retailer or auctioneer offers a product at a price they think it will sell at. If there is a great demand for it they increase the price; if no-one wants it they lower it.This applies all the way down the chain - if more people want the raw material the price goes up which in turn increases the price of the finished item. If the workers demand more money to keep up with inflation the price of the product needs to increase to maintain the companies profits.

However a second cause for increase is exclusivity. It's possible for demand to drop but for the price to increase because there are people who are prepared to pay that amount for the product. A company can drop the amount of product it makes for whatever reason and thus have to raise prices to maintain profit. The tie-in to exclusivity is monopoly which in turn relates back to supply and demand.

If only one company makes the product and a large number of people want it they can choose not to manufacture a large number of them and charge a premium; or they can continue at the same production rate and still charge a premium..

How does the Royal Mail fit in here? Well demand for their product/service is dropping so the price should also drop; however they have a monopoly so to maintain profits they increase the price instead. As this is likely to decrease demand even more they'll be heading into the exclusivity zone whereby sending a letter using them will be its own status symbol "I'm so wealthy I can afford to send letters using the Royal Mail".

This, however, stands against its currently government-owned status. The government shouldn't be funding a service that is only available to those who can afford it. Rather than demand a lowering of prices I see a full privatisation in a manner similar to the mash-up of energy providers/network maintainer or train/rail.

The flaw in that is that it changes nothing. There are already alternative services out there. Unless they're allowed to set up their own mailboxes the Royal Mail will still have domination over collection. Perhaps the government could force them to accept and re-distribute the competition's mail in the same way British Telecom had to open up their network; but I can see the competition's mail being 'accidentally' delayed in favour of Royal Mail's own.