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The U.S. Postal Service is a monopoly provider of first-class mail delivery (other companies such as...

The U.S. Postal Service is a monopoly provider of first-class mail delivery (other companies such as UPS and FedEx can deliver packages, but not first-class mail). Do you think this is an example of a cost-based monopoly, or is there some other explanation?

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Answer #1

It is a legally created monopoly where the government has given the exclusive right over the delivery of first-class mail to the USPS. This is not a cost based monopoly where the firm that is able to deliver a product at the lowest cost becomes a monopoly. Neither it is a natural monopoly where it is able to distribute the delivery at with economies of scale and a falling average cost.

Government has restricted other players to enter the market and deliver first-class mail. There are other modes of communication such as email, chats, social networking that are substitutes to first-class mail and taht are giving competition to USPS. Bit in the market for first-class mail. it is still the lone seller.

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