Institutions, Governance and Regulatory Risk in Postal Sector Liberalization

Increased direct and indirect competition represent great challenges to public enterprises in the postal sector. In order to adequately cope with these challenges, also regulatory institutions (which are intended to remedy market failure) need to evolve in parallel with developments in the market place. These changes impose themselves new regulatory risk on incumbent and entrant operators. In this paper we focus on risk and uncertainty caused by the (1) discretionary behavior of regulatory bodies and (2) the potentially incoherent instruments implemented to regulate public services in general and the postal sector in particular. In previous articles (e.g. Maegli/Jaag, 2009) we developed an analytical framework for the assessment of regulatory governance costs in regulated industries. There, we distinguish between direct and indirect costs of regulation: Direct costs occur in relation with the institutional design of the regulatory framework and the behavior of actors. Indirect costs arise because of distorted incentives in the regulated market which result in an inefficient supply of goods and services. In this article we further develop the construct of indirect costs of regulatory governance with respect to regulatory risks. We investigate the situation in the UK postal market by means of a case study. The UK example is of particular interest because the regulatory framework and its impact on the development of end to end competition as well as on the entrance models of competitors is controversially discussed among experts.