Question

Can USPS be considered as a natural monopoly? Explain.

Answer 1

US Postal Service (USPS) is not a natural monopoly.

A firm (business entity) is considered a natural monopoly if its long run average cost of production falls with increase in output, so that the firm enjoys economies of scale and has a cost advantage over potential entrants. But USPS has been granted single-firm status in certain postage service segments by US government, therefore USPS derives its monopoly power from government authority and not from any cost advantage from economies of scale.