"Hysteria" across some parts of the UK as the price of stamps rises from 30 April next week with reports of shoppers seeking to hoard. Setting aside the extreme reaction, the price rises are actually substantial. A first-class stamp will increase from 46p to 60p and a second-class stamp will move from 36p to 50p. These price rises come after the postal regulator lifted a number of retail price controls.
Online businesses are concerned that the price increases will dampen sales of internet goods. And, more generally, one may ponder whether hiking up the price of mail will be borne by the market given flagging demand.
For me this raises an interesting question - how much do people really care about the price of mail?
Well, in general, postal products are relatively price inelastic.
The range of elasticities estimated in the literature has been relatively small and, those estimates have not changed much over time. Across most developed countries the price elasticity of mail products is less than -1.0 and somewhere in the region of -0.2 to -0.8 (and, for the non-economists, it means that a 10% change in prices will produce less than a 10% change in volumes). Worth noting that this aggregates all mail into one category (consumer, bulk mail, bills etc) whereas amongst the sub-products there are likely to be varying sensitivities.
One may expect that the elasticity will increase over time as substitutes (e.g. e-technologies mentioned before) take hold and preferences change, but in the short-term many consumers will simply go ahead and pay a bit extra.
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