The United States Postal Service - 1644 Words

The United States Postal Service is a natural monopoly in the delivery of first class mail, as the 1970 Postal Reorganization Act prevents any other firms from delivering letter mail (Jaag, 2014). The reason for this was to allow one firm to specialize in mail delivery; therefore being the most efficient way to ensure the rest of the country received their mail on time. After all, receiving mail in a timely manner is critical for society to function. Imagine if everyone received their bills and letters weeks late? However, the USPS has begun to face a dilemma in recent years, in that it is seeing a sharp decline in revenue (Carbaugh, 2011). Not only is this bad for the postal service, but consumers will suffer as well because the postal†¦show more content†¦Therefore monopolies aim to produce more units of their good in order to maximize their profits. Reversely, if they produce at a high a level of output, marginal costs are greater than marginal revenue, and they therefore increase their profits by reducing the number of items produced (Mankiw, 2014). The United States Postal Service remains as a government regulated monopoly today, however after a long period of economic growth it has witnessed its profits start to decrease during the past 10 years. For example, between 2003 and 2012, the volume of first class mail decreased by 20% (Jaag, 2014). The delivery portion of the USPS is still classified as an essential facility, which is why it remains monopolized. The United States Postal service is currently facing numerous issues. For one, it is seeing a large rise in labor costs (Carbaugh, 2007). Over 80% of their workers are unionized. Disagreements on wages result in arbitration, which results in higher wages and thus the price of mail increases for consumers (Carbaugh, 2007). Another issue is that there is no profit motive. Since the USPS is government regulated the managers receive the same pay regardless of their output (Carbaugh, 2007). Every ti me a bargaining agreement is negotiated, the managers of the USPS receive a pay increase equivalent to that of the bargaining-unit increase