BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, D.C.
20268-0001
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Special
Services
Docket No. MC96-3
Fees and Classifications
ANSWERSOF THE OFFICE OF THE CONSUMERADVOCATE
TO INTERROGATORIESOF UNITED STATES POSTAL SEXVICE
WITNESS: ROGERSHERMAN (USPS/OCA-TlOO-19-22)
(OCTOBER25, 1996)
The Office
of the Consumer Advocate
of Roger Sherman to interrogatories
October
followed
11, 1996.
hereby
submits
USPS/OCA-TlOO-19-:22,
Each interrogatory
is stated
verba,tim
the answers
dated
and is
by the response.
Respectfully
submitted,
EMMETTRAND COSTICH
Assistant
Director
Office of the Consumer Advocate
i
ANSWERSOF OCA WITNESS ROGER SHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
Please refer
to page 4, line 2 of your
USPS/OCA-TlOO-19.
where you refer to the pursuit
of "equitable
testimony,
contributions
to institutional
costs."
Would you agree that,
in postal
ratemaking,
the
a.
are
essentially
the
same? If
concepts of "fai,rness"
and "equity"
not, please explain
fully.
submitted
the
In Docket No. R74-1, the Postal Service
b.
very recently
announced as
direct
testimony
of William
Vickery,
one of two winners of the 1996 Nobel Prize in Economics,
in
support of a Ramsey-type approach to pricing
postal
products.
When asked if inverse
elasticity
pricing
brings
about a "fair
distribution"
of the revenue burden, Dr. Vickery
responded:
Economists
have no special
expertise
in
deciding
what is fair and what is not.
For
that you need a vicar,
not a Vickery.
(Part 11, pg. 77.
Do you agree with
Docket No. R74-1, Vol. III
If not, please explain
fully.
these statements
by Dr. Vickery?
A.
Yes,
a.
Since
both
authors
Very
is
group,
words
appear
in statutory
few persons
such as economists
can claim
(or perhaps
have been articulated
economists
may play
the
to be expert
virtues.
statute's
even vicars).
role
and interpreting
-
in rendering
can be claimed
to define
an instrumental
of fairness
guidelines,
expertness
principles
representations
similar
some differences.
and no absolute
fair,
are very
and "equity"
may have presumed
:b .
what
"fairness“
by a
Some
fairness,
however,
in analyzing
these
their
application.
and
ANSWERSOF OCA WITNESS ROGER SHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
USPS/OCA-TlOO-20.
Please refer
to page 3, lines
10-12 of your
in
which
you
state
that
this
case
presents
"an unusual
testimony,
proposal
for making price increases
on a piece-meal
basis rather
than in context,
as in an omnibus rate case, where all rates for
all services
can be compared,"
and lines
16-21 of page 7, in
which you state that "to see the pattern"
of relative
price
relationships
(such as Ramsey) prices
"it
is desirable
to
consider
all prices
at once, as in an omnibus rate case."
Please confirm
that it is possible
to compare all rates
a.
for all services
at any time, whether one is proposing
to change
many rates,
few rates,
or no rates.
all rates,
If you cannot
confirm,
please explain
fully.
Please confirm
that it is possible
to compare existing
b.
relative
price
relationships
with those suggested by a Ramsey
model or, for example, a uniform markup model, whether one is
proposing
(or even contemplating)
a change in all rates,
many
few
rates,
If
you
cannot
confirm,
please
rates,
or no rates.
explain
fully.
A.
Yes,
a.
it
is possible
services
at any time.
however,
the
As I noted
When only
consequences
may not be included
to compare all
in my testimony
some new rates
to services
and then
rates
that
the evaluation
COCA-T-100, p.
:for all
are proposed,
are not being
will
8, lines
be incomp:Lete.
~1-7),
It is still
possible
to consider
effectively
only
of services,
if add&d care is given to the subset
effects
of relations
to other prices
and services
included.
The added care
seems to be lacking
in this
interrelations
with
and to compare
other
services
case,
altered
care
cost
a subset
and
are
to show the
coverages
ANSWERSOF OCA WITNESS ROGER SHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
CONTINUATION OF ANSWER TO USPS/OCA-TlOO-20:
across
all
b.
price
classes.
Confirmed.
relationships,
It
is possible
assuming
all
to compare
necessary
data
existing
relative
are available.
ANSWERSOF OCA WITNESS ROGERSHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
USPS/OCA-TlOO-21.
Please refer
to page 9, lines
lo-14 of your
where you claim that it "stands to reason that
testimony,
increased
prices
for only some services
will
distort
overall
Ramsey price relationships
or any other form of relative
relationship
fro:m whatever existed
before,
unless attention
is
focused on services
where price-cost
relationships
have fallen
out of line."
Please confirm
that this statement
presupposes
that,
a.
when rates were last changed, all rates were "in line"
with
Ramsey pricing
or some other deliberate
approach to establishing
price-cost
relationships.
If you cannot confirm,
please explain
fully.
Would you agree that it may be possible
to have a
b.
situation
in which all rates were not "in line"
at the time of
the last rate change, and that rate changes "for only some
services"
may thus improve conformity
rather
than cause
distortions?
If you do not agree, please explain
fully.
Would you agree, given a hypothetical
situation
in
C.
which price-cost
relationships
for a number of services
are "out
(regardless
of whether they were previously
"in line"
of line"
that it is better
to
and fell
out, or they were never "in line"),
move some (but not all)
of those services
in the direction
of "in
rather
than leave them all where they are?
Please explain
line"
your answer fully,
discussing
any factors
that you believe
might
be relevant
to qualify
your response.
A.
Confirmed.
a.
whatever
relationships,
I certainly
b.
fallen
Presumably,
out
distortions.
of line
That
existed
agree
could
is
this
interrogatory.
before
regard
to price
was approved
that
correcting
those
improve
conformity
rather
essentially
from page 9 of my testimony
with
that
what is
is quoted
And in the next
said
and accepted.
rates
that
than
in the
cause
sentence
at the beginning
sentence
have
of
I said:
But attention
clearly
is not focused in that way, since
two money losing
special
services,
C.O.D. and money
are not given any attention.
(OCA-T-100,. p. 9,
orders,
lines
14-17).
--
ANSWERSOF OCA WITNESS ROGERSHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
CONTINUATION OF ANSWER TO USPS/OCA-TlOO-21:
although
Thus,
services
could
suggests
that
While
it
improve
is not
it
but
due to cost
C.
their
attributable
these
two services,
conformity
such changes
the purpose
here.
changes
pricing
for
approved
rate
only
aims,
to the argument,
it
changes
some may have fallen
otit
some
evidence
would
seem
were not
of line
since
or demand changes.
to b.
A hypothetical
and money order
C.O.D.
improve
with
that
See answer
since
rate
conformity
to assume that
of line,"
then,
that
make no difference
more reasonable
"out
is possible
costs
at present.
C.O.D.
with
services
appear
were not proposed.
is unnecessary
to be priced
Raising
and money order,
the pricing
example
rates
would
requirements
for
thus
below
only
appear
of the Act.
to
But
ANSWERSOF OCA WITNESS ROGER SHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
USPS/OCA-TlOO-22.
Please refer
to the bottom of page 5 and the
top of page 6 of your testimony,
where
you discuss
the fee for
certified
mail and your views of the implications
of the fact
that competitors
currently
offer
comparable service
at much
higher prices.
Your claim that the Postal Service has "market power"
a.
is supported
by quotation
of a statement
that identifies
conditions
to test for the presence of "monopoly power."
In
your view, are "market power" and "monopoly power" the same? If
applies
to certified
mail:!
Please
not, which do you believe
explain
your answers fully.
Please confirm
that,
according
to the criteria
for
b.
"monopoly power" quoted at lines
5-9 of page 6, the competj.tors
of the Postal Service
that charge much higher prices
for
comparable
service
must have monopoly power in the market because
they have raised their
prices
far above the fees for Certified
Mail without
concern for the reactions
of the Postal Service.
If
you cannot confirm,
please explain
fully.
Please confirm
that the Postal Service
cannot be
C.
"exploiting"
its market power if other service
provj.ders
continue
in the market charging
higher prices
than those of the Postal
and customers continue
to patronize
those service
Service,
If you cannot confirm,
please explain
fully.
providers.
If a firm has market or monopoly power, does the
d.
imposition
of any price
increase
constitute
"exploitation"
of
Please explain
fully
that market or monopoly power?
(distinguishing
between the two types of power to whatever
extent
how
does
one
distinguish
a
If not,
you believe
to be relevant).
price increase
that would constitute
"exploitation"
from one that
Please explain
fully.
would not?
Please confirm
that if a firm can raise its rates
e.
without
concern "because its rivals
cannot offer
customers
the service
in question
must have a
reasonable
alternatives,"
term
is used in
as
that
high "value of service"
to its customers,
If you cannot confirm,
please explain
fully.
postal
ratemaking.
Is it ,your testimony
that,
all other things being
f.
a fee increase
for Certified
Mail would be more defensible
equal,
if comparable
services
offered
by competitors
were available
at
rather
than a higher prices?
Please
equivalent
or lower prices,
explain
fully.
ANSWERSOF OCA WITNESS ROGERSHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
ANSWER TO USPS/OCA-TlOO-22:
A.
a.
often
The words,
"market
used to represent
is generally
this
is
"monopoly
the dominant
may effectively
above the
the power
used when there
situation,
Service
power"
exist
Postal
is
to raise
clearly
seller.
price.
other
that
alone
prices
is
power"
one seller.
the
monopoly
sellers'
it
are
"Market
be used because
Alternatively,
because
power"
more than
could
power"
Service's
and "monopoly
In
Postal
power
are so far
in position
to raise
price.
Not confirmed.
b.
Alternative
service
may be handicapped
survive
at their
may often
exist
different
features
costs,
and barely
of
able
to
Higher
on the
fringe
priced
providers
of a monopoly
and attracting
o:E
service,.
some customers
a service
offering
despite
serious
disadvantages.
No, nothing
d.
monopoly
private
its
by higher
providers
disadvantage.
Not confirmed.
C.
cost
cost
or "fringe"
exploitation.
mono,poly
position
position
as simple
is
by choosing
by
based,
profit
the high
increase
one would
Ordinarily,
(a monopoly
revealed
as a price
say,
maximizing
level
can identify
expect
on a patent)
prices.
of prices
a legal
to exploit
The monopoly
in relation
to
ANSWERSOF OCA WITNESS ROGER SHERMAN
TO INTERROGATORIESUSPS/OCA-TlOO-19-22
CONTINUATION OF ANSWER TO USPS/OCA-TlOO-22:
not by changes
costs,
monopoly
power may not
maximizing
price
enterprise
market
be reasonable
evaluation
which
Certified
prices.
Service
increase
increased
service
might
its
it
is
of the overall
pricing
with
with
serving
for
would
the price
be determined
policies
of the
in an omnibus
rate
a fee increase
Mail
to do with
the
level
merely
indicates
would
price
they
seem to have market
for
depends
relative
are high
Certified
on cost
to others,
Mail.
coverages
power that
Whether
case.
for
of alternative
that
the
would
price
and value
and on other
by an
enterprise,
in considering
That
such an
increase
No, the problem
has little
the
in a particular
Whether
of course,
profit
however,
situation
there.
done,
charged
be possible,
monopoly
price
enterprise
power by setting
or exploitative
is most easily
f.
it
its
use its
because
to exploit
by raising
would
fully
levels,
At any time
public.
A public
in prices.
pricing
Postal
permit
should
of service
criteria.
it
to
be
for
this
DECLARATION
I,
answers
Postal.
Roger Sherman, declare
to interrogatories
Service
information
are true
and belief.
under penalty
USPS/OCA-TlOO-19-22
and correct,
of perjury
that
of the United
to the best
the
States
of my knowledge,
CERTIFICATE OF SERVICE
I hereby
certify
document upon all
accordance
with
that
I have this
participants
section
3.B(3)
of record
date served
in this
of the special
proc'seding
rules
EMMETTRAND COSTICH
Attorney
Washington,
D.C.
October 25, 1996
20268-0001
the foregoing
in
of practice.