The U.S. Postal Service Postage Rates and What the Future May Hold

Let me ask you a rhetorical question: How many emails do you send out each day, and how many letters? (That's the traditional, hard-copy, snail mail things that go in envelopes that get stamps put on them and dropped in boxes, for you email afficionados that don't use the U.S. Postal Service.)

Anybody here think that U.S. Postal Service rates are going to come down? Didn't think so. And how do you know that they will keep going up? Well, if you just look at historical trends, and realize that objects in motion tend to stay in motion, you'd conclude that the cost to mail a letter is probably going to keep increasing the rest of your life.

And why is this, you ask? Reasons could be due to rising fuel costs, general inflation, better/faster service, etc. But another reason may be: Elasticity.

Elasticity is quite a complicated theory to introduce in just one bite, so let's simplify it to an idea. Basically, it is your "Willingness to do something else". I, for example, have a high elasticity in purchasing bread. I do not care what kind of bread it is, exactly. Wonderbread is fine, but if that got too expensive for me, I would just switch to Eddy's or Grandma's Delight. I have a very low elasticity for Dove chocolate. Dove is delicious, but Hershey's is vicious. :) Got the idea?

Now, apply elasticity to the U.S. Postal Service. As the cost of stamps rises, how easy is it for you to do something else? If you're just sending a note to a friend, and maybe a picture or two, you could very easily send them an email instead. If you're mailing a check to the power company, you could do that instead through their online payment system. So, when it comes to some types of communication/transactions, you could very easily switch from mailing it to doing it online. That means that as the cost of mailing something rises, more and more things will switch to do it online. As that happens, the things that are left to be mailed are the really "inelastic" uses of snail mail. Such as: wedding announcements, checks to relatives, thank-you cards, jury duty, eviction notices, etc. :) Soon, the only mail sent via the USPS will be those that canNOT be sent over the internet. Those mail patrons have a letter that MUST be delivered as a hard copy. Well, what does that mean for the price of mail?

It will go up, of course! When the only uses left are inelastic, then even if they up the price significantly, there is no switching, because you HAVE to mail it. (This is, of course, limited to the lowest price FedEx or UPS or DHL charge to deliver a letter, since they are competitors at a high-enough price level).

So, the moral of the story is: don't expect USPS rates to come down (ever). Only the inelastic uses are left, so the price can go up and no one will switch.