\begin{flushright}
\hangindent=2.1cm \hangafter=0 \textquotedblleft \textit{Although there has
been much theoretical and empirical research on the effects on privatization
and competition in infrastructure in general, relatively little work has
been done on how the degree of privatization and competition affects
performance and how components of the policies interact in shaping the
reform outcomes.\textquotedblright }\footnote{%
Li and Xu (2004), p. 1.}
\end{flushright}

\noindent Especially in physical infrastructure industries like, e.g.,
telecommunications, electricity, railways, and nevertheless in the postal
industry, regulatory policies have a major impact on the outcome of the
market. This includes quantities, prices, and productivity, but also the
industry structure and the conduct of the players on the markets.

While the literature on policy analysis and evaluation mainly focused
infrastructure-tied industries in the past, with the ongoing regulatory
reform and the high importance of the postal markets -- not alone in terms
of the product market size, but also in employment terms -- the postal
industry get focused increasingly. Against the background of the ongoing
process of liberalization especially throughout Europe, and the
contemporarily difficult overall economic conditions which even seem to
accelerate the trend of declining mail volumes, the importance to regulate
markets in an optimal way in order to minimize potentially negative effects
of regulation has become increasingly important.\footnote{%
CREW; K\"{O}HLER !!!!.}

Therefore, we consider the effect of different economic, social, and
demographic factors for the countries Finland, France, Germany, the
Netherlands, Spain, Switzerland, the United Kingdom as well as the United
States. The variables contain factors that already have been identified to
be of significant drivers of mail volumes including population data,
telecommunications penetration data (as a proxy for possible
e-substitution), and introduce regulatory variables to analyze their impact
on the market development. Thereby, we employ fixed effects (FE) least
squares (OLS) and a FE logit regression.

High overall product market regulation as well as access regulation tends to
affect market volumes (employment) negatively (positively), whereas
independence and corporatization of the incumbent operator tend to affect
volumes and turnover positively. Unfortunately, the data is very limited and
statistical significance cannot be achieved. Due to the lack of sufficiently
complete and precise data, at the moment, no database seems to be suitable
for cross-country policy analysis in the postal industry.

\section{Literature review}

The work is motivated by the existing literature on postal demand
estimation, papers on electronic substitution and -- more in general -- the
drivers of different mailstreams, as well as papers on regulatory impact
analysis.

So far, the main drivers of mail demand have been mainly the gross domestic
product (GDP), prices, and other variables reflecting economic activity, for
example income. But since quite a while, the explanatory power of these
models appears to be decreasing and the portion of unobserved heterogeneity
increased over time.\footnote{%
Cf. also Diversified Specifics (2002) for the disaggregated view on
different mailstreams.} E.g., Diakova (2005) shows, that total mail volumes
so far have been explained to a large extent by real GDP (with 85\% of the
variance observed explained solely by this factor), but since 1998, the
correlation has been falling behind (at least for the US). This is
especially observable if different types of mail purposes are considered
separately.

Harding (2004) provides an extensive overview over the models used up today
and proposes to include the distribution of the incomes to be included in
order to correct for some deviances.\footnote{%
E.g., Jimenez, Harding, and Lintell (2007) propose the inclusion of income
dispersion (inequality) measures in order to improve model fits to some
remarkable extent.} He also finds, that GDP is able to explain a large share
of the observed variance, although also proxies for economic activity such
as households having a bank account, having a phone and so on contributes a
lot if explanation to the data observed.

Nader and Lintell point to some further aspects that should be included in
the analysis, for example the possibility that the volume gains by
competitors might offset the decline in mail volumes delivered by the
incumbent National Postal Operators (NPOs), that quality improvements lead
to the shift of mail from priority to economy categories as well as quality
improvement in targeting customers with direct mail might lead to a shift to
mail categories of higher quality or even to small promotional parcels at
the expense of the amount of direct letter mail sent.\footnote{%
See Nader and Lintell (2007), based on Nader (2004).} Common to all authors
is the proposal to disaggregate the mailstream and to add additional
explanatory variables.

Substitution not between different mail types but to electronic alternatives
is another central issue for the postal industry, since the choice of
mailers and the receiver preferences are also not fully understood yet.%
\footnote{%
Cf., e.g., Nader and Jimenez (2005) and Szeto and Jimenez (2005).} One
example for an extensive econometric model of the US market based on the
Household Diary survey predicts further decline of mail demand with rising
personal computer penetration, growing stamp prices, and declining telephone
service prices,\footnote{%
See Hong and Wolak (2008).} whereas other authors additionally predict an
increased pace of the decline in the current economic downturn, albeit the
impact on the various mail categories differs substantially between short
and long run, different mail attributes and contents, and depending on the
different needs of senders and receivers.\footnote{%
Although mainly the sender chooses the communication channel (because she is
the party that pays), it has to fulfil the need of both, the senders and the
recipients. Koppe and H\"{o}mstreit (2009).} Surprisingly, at least in the
volumes from 1999 until 2009, the OECD does not include letter mail in their 
\textit{Communications Outlook}, but concentrates on electronic
communication and broadcasting, but on the other hand issued a report on the 
\textit{Impact on Substitute Services on Regulation}.\footnote{%
Cf. OECD (1999, 2001, 2003, 2005, 2007, 2009) and OECD (2006).}

The articles on regulatory analysis in the postal sector start from verbal
discussions of postal reforms like the the seminal article of Coase (1939),
to theory-based qualitative assessments concerning the optimal regulation of
the postal market.\footnote{%
Cf., e.g., Baake and Wey (2007a), De Bijl, Van Damme, and Larouche (2005),
Heitzler (2009).} Additionally of high importance is to embed the postal
service markets and the governing regulation into the communications market
as a whole.

Closely related to the regulation of competition in these markets especially
is the impact of the Universal Service Obligations on consumers and on
competition. Overall, the right assessment of these services of public
interest and the right policy implications might substantially improve the
preconditions for competition to evolve, if no operator is restricted overly
and the mandated services are adapted to the preferences and need of the
consumers.\footnote{%
Cf., e.g., Finger (2006).} The result of efficient regulatory policies might
not only be optimal conditions for the consumers and customers, but also
efficient competition patterns to evolve.\footnote{%
De Bas and van der Lijn (2008).} Game-theoretic models of the industry
thereby provide additional valuable insights into the postal industry.%
\footnote{%
Cf., e.g., Crew and Kleindorfer (1998), Dietl and Felisberto et al. (2006)
or Mizutani and Uranishi (2003).}

The articles on regulatory reform in a broader context comparing
international product and labor market reforms either are not
industry-dependent, for example if they employ a macroeconomic \textit{%
General Equilibrium} model\footnote{%
Cf., e.g., Blanchard and Giavazzi (2003).} or if they empirically analyze
macro effects and the interdependence of labor and product market
institutions and/or reforms and the related outcomes,\footnote{%
E.g., Koedijk, Kremers et al. (1996), Loayza, Oviedo, and Serv\'{e}n (2004).}
or these papers are mainly dealing with other issues than the postal
industry. Prominent examples are the papers dealing with the regulation,
market structure and performance of telecommunications and other physical
network industries.\footnote{%
E.g., Boylaud and Nicoletti (2000), Grajek and R\"{o}ller (2009), Li and Xu
(2004), Nicoletti, Scarpetta, and Lane (2003), R\"{o}ller and Waverman
(2001), Wallsten (2001), Waverman, Meschi et al. (2007).}

For example, Grajek and R\"{o}ller (2009) analyze the trade-off between
access and investment incentives using a dataset covering over 70 fixed line
operators in 20 countries over 10 years. Data source include the Amadeus
firm level database for capital stock levels and investments, the Plaut
Economics telecoms regulatory index amongst others. Not surprisingly, these
studies provide very robust results. They find that a regulatory commitment
problem which leads to the fact that access regulation negatively impacted
overall and individual carrier investments (including individual entrants)
and regulatory endogeneity which leads to the problem, that the higher the
incumbents' investments, the higher the probability that mandated access had
to be provided, additionally undermining the investment incentives. 

Koedijk, Kremers et al. (2006) find a clearly negative relationship between
regulation and economic performance, both of labor and product market
regulation. They state the view, that it is key to avoid unnecessary
restrictive regulations, although not all regulation has a negative impact
on the overall development of the market, for example regulations which
increase market transparency or facilitate market entry might be well in
place.

Waverman, Meschi et al. (2007) examined also the telecommunications sector
and the impact of access regulation (local loop unbundling, LLU) on
investment in infrastructures including alternative access platforms in
order to capture the most important aspect of telecommunications regulation
and competition, namely sustainable inter-modal competition between
different platforms. Their main result is, that low local loop access prices
cause a strong substitution from broadband over alternative platforms
towards access-based competition, which leads to massive distortions
concerning the market evolution and innovation.

Similarly to \textit{End-to-End competition} (vs. \textit{Worksharing}) in
the postal industry, greater diversity of access platforms can be expected
to provide greater opportunities for innovation and product differentiation.%
\footnote{%
See Waverman and Meschi (2007), p. 2, cf. also Baake, Kamecke, and Wey
(2007).} Factoring in the impact of access regulation (and even worse in
combination with regulated low access and end prices) leads to the effect of
overall decreased access lines. Their findings included, that low LLU prices
prevented the roll-out of competing access networks as well as the upgrading
or increasing the footprint of existing networks, thus limiting last mile
innovations.

Common to these papers are sophisticated econometric models and the use of
data compiled from different sources in order to obtain a dataset which
allows for very detailed analysis of the question in doubt. For this paper,
the data availability for the postal industry was explored with the goal to
see, whether it was possible to conduct a similar analysis for the postal
industry to bridge the gap between the methods employed in the papers
mentioned and to obtain insights that could be useful for the recommendation
of postal policies based on econometric analysis.

\section{The Data}

In order to estimate a model of similar value, data of similar extent and
quality is necessary. Therefore we tried to collect the data relevant for
postal policy and to understand the effect of regulation on the
interdependencies between neighboring sectors from exiting sources (cf.
Table XXXXXX: Data and data sources).

Starting point was a set of eight countries, namely Finland, France,
Germany, the Netherlands, Spain, Switzerland, the United Kingdom and the
United States. These industrialized countries were expected to have
relatively large amount of data available and heterogeneous enough to allow
for estimations. The timeframe was set to include the year 1992 to 2006.
1992 was chosen as the starting year of the European postal reforms with the
publication of the \textit{Green Paper} by the European Commission (EU\
1997), including Switzerland and the US as countries intentionally not
covered by the European reform agenda.

Most of the data is relatively easy and freely available. This includes all
data on the country characteristics, such as size, population, degree of
urbanization and macroeconomic factors such as gross domestic product,
national income, or price indices.

Especially the data on the postal sector was very difficult to find for the
years before 2000 and 1994 in particular; therefore the dataset had been
restricted to the years 1994 -- 2000. Especially surprising was the fact,
that Eurostat had dropped gathering data on the postal sector, although the
liberalization agenda had been initiated by the European commission and
started the collection of data on postal markets not before 2005 again.
Unfortunately, all data is characterized by many missing values and
aggregates on the firm level, which has been an especially difficult issue
to deal with due to the high level of merger, divestiture and
diversification activities, so that much of the data had to be examined very
carefully. The market and operational data was especially difficult to deal
with due to reluctance concerning their publication and the high levels of
aggregation.

\bigskip 

\TEXTsymbol{<}TABLE\ Data and Sources\ HERE\TEXTsymbol{>}

\bigskip 

The variables of the uniquely constructed dataset which will be used for the
following preliminary assessment are outlined briefly in the appendix (cf.
Table XXXXXX: Data and data description). The according summary statistics
are given in the following table (cf. Table XXXXXXXX: Summary statistics).

\section{The Econometric Model}

\TEXTsymbol{<}HYPOTHESES\TEXTsymbol{>}

Due to the limitations of the dataset, only Fixed Effects (FE) estimations%
\footnote{%
XT/XX/gamma loglin? ???????????} are used in order to capture all unobserved
heterogeneity. The regressions (1) to (4), (6), and (7) thereby employ FE
Ordinary Least Squares (OLS) regressions, whereas in regression (5) a FE
Logit estimation was run. Fixed effects have been chosen due to the clear
advantage that it allows to correct for a (presumable) omitted variable
bias, as it captures all individual time invariant information on the fixed
effect, which implies that only information that is varying over time is
used to determine the coefficients, meaning a restriction to the used sample.

\bigskip 

\TEXTsymbol{<}TABLE\ Estimation Outputs\ HERE\TEXTsymbol{>}

\bigskip 

As mentioned above, statistical significance is only achieved in the
estimation (5), where the dependent variable is binary only, assuming the
value 1 if the volume of the letter post items has grown compared to the
previous period, and zero otherwise. In this simple case, GDP growth leads
to letter mail volume growth as expected (even at the 99.9\% confidence
level), whereas regulations proxied by the \textit{Economic Freedom of the
World} indicator by the Fraser institute have significant negative impact at
the 95\% level.

The estimations (1) to (3) all show some impact of the explanatory variables
on the volume of letter post items of the NPO. Although not all estimators
are significant, their sign is almost in the expected direction. GDP growth
has a positive impact on volumes development as well as independence and
corporatization of the NPO and population growth have. Negative impact could
be expected from the share of users with access to the Internet (presumably
proxying e-substitution), while the regulatory index and access regulation
itself would have been expected to exhibit negative signs. The rate of
mobile subscribers within the population is close to zero -- which could be
interpreted either as being zero or in a way, such that the additional
volumes offset pretty exactly the letter substituted with these phones, but
this remains open to speculation. Estimation (4) is just a regression of the
regulatory index and the GDP growth rate on the growth rate of NPOs'
revenues from letter mail. Here also the signs at least point to the right
direction.

Regression (6) point towards the suspect, that corporatization might lead to
a decrease, while government ownership tends to increase employment at the
NPO, (7) provides a first suspect, that corporatization increases the
revenues from letter mail, while government ownership seems to have very
little impact at best.

But in order to test for causality of these apparent numbers, a number of
exclusion restrictions should be tested first, which also would in this
\textquotedblleft test case\textquotedblright\ not be very reliable due to
the restrictions of the underlying data. Also, with more reliable data,
before any policy decisions are drawn from such data, the assumption of FE
should be tested using at least an F-test for FE and using an LM-test for
Random Effects (RE) in order to be sure, that the model should use an FE
specification.

\section{Results}

Although the direct estimation results here provide no statistical evidence
for the value of the estimation of the influence of explanatory variables
concerning regulations, a model comparable to this (or the better the more
sophisticated approaches cited above) should be applied as soon as a
suitable dataset comes at hand. The \textquotedblleft
results\textquotedblright\ are well in line with many theoretical papers for
the postal industry as well as with many empirical papers examining other
industries.

Although the data leaves room for the assumption that there are further
variables influencing the overall postal market development, it does suggest
that the policy influences on volumes, prices, markets, employment, and
agents' behavior also from the variables taken into consideration should be
taken into account when economically sound policies are to be designed.

Although firms are generally reluctant to provide precise data, the data for
research not necessarily has to be up to date. If there would be a lag of
two or three years between the generation and the disclosure of the data,
there could be a useful set provided which keeps the interests of the
research community, the policy-making institution as well as the firms
active on the markets in balance.\footnote{%
A view which is clearly shared by Boldron, Cazals et al. (2009), which also
state \quotedblbase a need for a better database\textquotedblleft\ (p. 13).}

\TEXTsymbol{<}LAGGED\TEXTsymbol{>}\ ????????????

Limitations of the data include that there was a relatively small number of
observations left, especially if growth rates or differences were computed,
leading to the loss of another year in the time dimension. An ideal dataset
would include harmonized and complete data from official statistics. Price
data and competition measurements, such as Herfindahl indices or
concentration ratios like the market share of the largest firm in a
well-defined market (CR1) or the joint market share of the three biggest
companies (CR3) were completely unavailable.

\section{Conclusion}

Overall, the importance of precise data to evaluate policies and estimate
the likely impact of different regulatory settings being discussed is
especially high in industries which are undergoing rapid changes as the
postal industry at the moment. The test of the inclusion of a variety of new
indicators and variables could provide significant advantages when it comes
to the creation of the optimal regulatory conditions in order to focus on
market growth.

Deeper understanding of the regulatory influence on the overall market
development not only could lead to improved regulatory conditions but could
also uncover further driver of business development. This study is thereby
thought to serve as a starting point for a debate about the impact of postal
regulation based on solid statistical evidence rather than a final
conclusion.

Although the postal sector is much older than the telecoms sector, data
availability is much more limited due to the slower introduction and
development of regulation and competition than it is in the
telecommunications sector. Especially when it comes to future regulation,
improved data availability might be of particular advantage; although theory
says, that most of the market can be left unregulated, it could be expected,
that regulators might try to \textquotedblleft advance\textquotedblright\
competition in a direction they believe it is right rather than to know what
the real impact and possible costs are.

\TEXTsymbol{<}HYPO, SSIZE\TEXTsymbol{>}\ ????????????

Therefore, a comprehensive database containing much more detailed
information than the existing databases would be very helpful if it would be
available for research and policy work. Data availability, comparability and
correctness thereby are more important than immediate disclosure. \newpage 

\section*{%
%TCIMACRO{%
%\TeXButton{TeX Feld}{\section*{Appendix}
%\addcontentsline{toc}{section}{Appendix}}}%
%BeginExpansion
\section*{Appendix}
\addcontentsline{toc}{section}{Appendix}%
%EndExpansion
}

Appendix.

\bigskip 

\TEXTsymbol{<}TABLE\ Data and data description HERE\TEXTsymbol{>}

\bigskip 

\TEXTsymbol{<}TABLE\ Summary statistics HERE\TEXTsymbol{>}

\bigskip 

