The economic and moral benefits of ending Canada’s postal monopoly

Currently, Canada Post holds a monopoly on the delivery of first-class mail in Canada. The Canada Post Corporation Act affords it the “sole and exclusive privilege of collecting, transmitting, and delivering letters” within the country. Exceptions to this rule are limited.

There are several economic reasons for liberalizing postage in Canada by ending the Crown corporation’s monopoly. Since they are sheltered from market competition, for instance, monopolists can raise prices higher than firms in a competitive market could. The firm’s additional revenue stemming from its unique ability to participate in its market is termed monopoly rents. These rents reflect the difference between the firm’s prices and opportunity costs, which tend to converge in competitive markets as companies undercut each other until the process becomes unprofitable.

Sensing this advantage–that is, the ability to extract additional rents via monopoly status–unions typically bargain for some portion of these rents in the form of higher wages, favourable working conditions, and so forth. Nevertheless, this increases the firm’s costs.

Canada Post faces a difficult financial position because it allowed unions to absorb these rents. However, the emergence of newer, more efficient technologies eroded its ability to sustain higher levels of worker compensation. It manages these hardships by reducing costs by diminishing services, which has the counterproductive effect of exacerbating declining demand for its product. For instance, it announced plans to end mail delivery to urban homeowners and it has increased its stamp prices to offset its financial difficulties.

Importantly, though, Canada Post has the ability to impose these reforms only because consumers do not have a viable alternative for first-class mail delivery and other essential postal services.

By opening the postage market to competition, firms would need either to offer services closer to cost or offer better service than their competitors. Theory suggests, and empirics confirm, that liberal reforms in would reduce prices and increase the amount of options available to consumers, which, in the case of Austria, the Netherlands, and Germany–countries that liberalized their postal markets–is true.

Proponents of Canada Post’s monopoly suggest that it provides equal rates across the country, which allows the outfit to provide “affordable mail service” to rural Canadians. Yet, it is not entirely certain that competing firms could not offer cheaper rates in these areas than Canada Post. Furthermore, it is not necessarily clear why the postage industry has an obligation to equalize rural and urban Canada in the first place.

The monopoly on mail service in Canada also adversely affects free speech. In early March 2014, Canada Post apologized for delivering offensive pamphlets prepared by the People’s Gospel Hour to thousands of Labradorians. The mail-outs quoted the Bible in an attack against homosexuality. These situations raise an ethical dilemma about Canada Post’s ability to act as both a conduit of Canadian values and a service-provider.

Canada Post is a crown corporation chartered by the Canadian government, which promotes certain values and, therefore, it cannot sensibly deliver mail that is questionable in content. Conversely, it is the only firm permitted to deliver certain documents and packages and it cannot refuse certain mailing orders without violating freedom of speech (at least theoretically).

Ending the mail monopoly, and thereby allowing private individuals and firms to deliver letters, would solve this quandary – neither Ottawa, nor Canada Post, would have to implicitly support the dispersion of bigoted materials in order to safeguard freedom of speech and censored groups could seek alternative options for delivering said material. In other words, Canada Post employees would not be the ultimate arbiters of what is “acceptable” for delivery.

In any case, Canada Post’s monopoly is both uneconomical and ethically challenged, and allowing competitive forces to govern the Canadian postal market is a viable alternative. Unlike the current structure, for instance, private competition could allow for better quality and more affordable service, not to mention that, most importantly, it would quash concerns about the government’s role in deciding between decency and free speech.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

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