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The most likely target of any competition for first class mail is this kind of low cost, high profit transaction mail in these urban areas. If all low cost, high profit business mail were diverted from the Postal Service, the average cost per letter for first class mail would necessarily rise. This is because the more costly types of letter services would become a higher proportion of the Postal Service's business. Additionally, the total volume of first class mail handled by the USPS might decline. If there were economies of scale in the Postal Service that are significant-and no empirical evidence demonstrates that there are-- the decline in mail traffic would, in theory, also cause some increase in the per piece cost of first class mail.

It is also reasonably likely that repeal of certain of the private express laws, such as the restrictions on the use of mailboxes, would trigger competition in other classes of mail. Subsidies notwithstanding, publishers for example have demonstrated increasing dissatisfaction with the quality of service provided by USPS. As the quality of service erodes, the service becomes an expensive proposition even at a relatively low, subsidized price.

Who Gains and Who Loses ?

On the basis of the limited information now available, it is very difficult to show precisely who would gain and who would lose from repeal of the private express laws. If, for example, competition for first class mail were permitted, it would seem that competitors would have to divert not only all new traffic--there is a 5-6 percent increase evidently each year 31/-but also sufficient existing traffic before there would be any neasurable effect. If sufficient new and "existing" mail traffic were diverted, and as a consequexe the average cost per piece of first class mail rose, it is still unclear that there would be any measurable impact on first class service or rates. At present, the rates for this service generate revenues very substantially

30/ Some publishers, such as Dow Jones, have carried this strategem to the point where printing operations are dispersed, linked by communications sate.lite circuits. Evidently a reluctance to continue reliance on the USPS prompted this decision to go to such satellite operations.

31/ Total mail volume rises nearly 3 billion or more "pieces" a year. While first class originations by individuals appears to be declining, those by business appear to be increasing, but at different rates in different parts of the country.

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in excess of legitimate attributable costs. A very substantial increase in costs would thus be needed to justify cost-based rate increases for first class mail. In any event, it is unclear whether mail delivery services would suffer. As pointed out above, rural mail delivery services are already being cut back significantly. About 40 percent of all mail, moreover, is picked up at post offices, not physically carried to patrons' homes.

If competition diverted other classes of mail, first class mail users and the Postal Service should benefit overall. At present, much of second, third, and fourth class mail is apparently not fully compensatory. This mail is subsidized by first class mail users. The loss of subsidized business should reduce the amount of subsidy which first class mail users are currently required to "contribute." Indeed, if sufficient amounts of this "nonremunerative" mail traffic were diverted from the USPS, the likelihood of the adverse consequences described above would diminish. Costs in handling first class mail might rise to be sure. However, prices to first class mail users could be kept the same, or indeed, lowered, since the need to generate excess revenues to subsidize second, third and fourth class users would be less.

Conclusions and Recommendations

Commenting on the Postal Service, and proposing a "Cure for the Postal Problem," one publication editorialized-

The Post Office has behaved like any profitmaximizing monopolist. So as to maximize the amount of mail subject to the postal monopoly, and thus to protect Post Office revenues, it has construed 'letter' to be as all-inclusive as possible. Apparently other public policy considerations-- service, convenience, speed of delivery, needs of business and commerce-- have been heavily discounted by the Post Office in inter

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At least since the 1600s the basic scenario
of postal competition has been the same. First
the government's mail service is deficient.
Then an enterprising individual decides that he
can make a profit by offering faster or cheaper
service than that provided by the government.
Letter writers start using the private service.
The government Post Office senses an impending
loss of revenue and may even feel chagrin at
being shown to be second-best in service or ef-
ficiency. Government then takes action to force
the private challengers out of business.

Wall Street Journal, June 18, 1974, at 17.

The Journal recommended that Congress entirely repeal the private express statutes and "let nature take its course." This is not necessarily an irresponsible proposal. A year before, the Chief Administrative Law Judge for the Postal Rate Commission wrote-

The real solution (to the Postal Problem) lies
in a bona fide improvement in efficiency which
the spur of competition should provide-- not
in selling below cost and placing the resulting
cost burden on first class mailers.

Opinion, supra at 164.

Given the tremendous problems that now confront the Postal Service, it is not irresponsible to argue that things are now so bad that any change can only be for the better. Yet we do not urge Congressional action without further study of the consequences of repealing the express laws. Nor is it likely that Congress would so act without additional study. Indeed, proposals to effect such repeals were made while the Senate was debating the most recent legislation to fund the Postal Service's deficit, and defeated by a vote of 77 to 4.

What is necessary, therefore is a thoroughgoing, independent analysis to appraise the potential public impact of repealing these longstanding laws.

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the Nation's postal business is a recognized public policy goal. Competition is an acknowledged tool for assuring such management. In other instances where we have relied upon competition it has produced undisputed public dividends. Yet competition has not been employed or permitted in the case of the country's second largest utility service. Even if this position were justified in the past (which we doubt), it is not justified today; and it should not be tolerated in the future absent very compelling public policy reasons.

January, 1977

APPENDIX 8

REPORT OF THE TASK GROUP ON ANTITRUST IMMUNITIES

INTRODUCTION

In the Fall of 1974, the President decided to establish an interagency task group for the purpose of evaluating the various exemptions to the antitrust laws which have come into being over the past several decades. This Task Group was to be part of a larger effort directed toward eliminating unnecessary and burdensome Federal regulations and to ensuring that Federal statutes and regula tions serve to promote-not inhibit-competition within the economy. Formally organized in February 1975, the Task Group was chaired by Thomas E. Kauper, Assistant Attorney General in charge of the Antitrust Division of the Depart ment of Justice, and reported directly to the President's Economic Policy Board The Task Group also included representatives of the Office of Management and Budget, Council of Economic Advisers, Council on Wage and Price Stability. Council on International Economic Policy and the Domestic Council. Other agetcies gave assistance in areas of their particular expertise. Donald I. Baker was nominated to be Assistant Attorney General in August 1976 and he succeeded Mr. Kauper as chairman of the Task Group.

The Task Group's first step was to identify the antitrust exemptions contained in current law. It then determined which of those exemptions were mist suitable for intensive scrutiny by the Task Group, which were already the sab ject of other Administration reform efforts, which were most suitable for refra through litigation, and which were otherwise inappropriate for intensive review, given the Task Group's limited resources.

This Report summarizes the results of the Task Group's efforts. The Report reviews each of the main antitrust exemptions created by statute (eg, motor carrier rate conferences) and those created, or arguably created. by judica decision (e.g., baseball). These discussions also summarize the Task Groups findings and suggestions concerning the retention, repeal, or revision of the exemption or, where appropriate, report the legislative or judicial developments concerning the exemption which occurred following the establishment of the Task Group.

Submitted with this Report are working papers on three exemption areas (insurance, ocean shipping and milk marketing), and a briefer report on the Postal express statutes, which embody restrictions that are inconsistent with antitrust policy.

The following Antitrust Division personnel contributed their efforts to this Deport:

Hugh P. Morrison, Jr., Deputy Assistant Attorney General; Jonathan ( Rose, Deputy Assistant Attorney General; Joe Sims, Deputy Assistant A torney General; George A. Hay, Director. Economic Policy Office; Barba A. Reeves, Special Assistant to the Assistant Attorney General: Neil E Roberts, Chief. Evaluation Section; and Donald L. Flexner, Chief, Regulated Industries Section (formerly Chief, Regulatory Reform Unit).

Staff attorneys: Ilene E. Block, Howard M. Blumenthal, Craig W. C rath, James P. Denvir, Roger W. Fones, A. Theodore Gardiner, III, Vick G. Golden, Janet C. Hall, Gordon L. Lang, David L. Lapides, Richard Levine, Guy B. Maseritz, Daniel J. Pearlman, and Kenneth G. Robinson, J Staff economists: Robert M. Mason, Bruce R. Snapp, and Robert W

Wilson.

Staff secretaries: Evelyn M. Buggs, Nancy B. Crocker, Carol G. Dorset Barbara A. Harmon, Judith R. Harris, Linda L. Hill, Carol A. Hor Deborah M. Lewis, Michele L. Olson, Elena M. Parker, Anita L. Siefert, and Barbara J. Yeoman.

THE RATIONALE FOR REEXAMINING EXISTING EXEMPTIONS

The Sherman Act (passed in 1890) and the Clayton Act (passed in 1914) the basic antitrust stetutes, constitute a broad commitment to competition bes on efficiency. The main thrust of these laws, together with such important st lary statutes as the Celler-Kefauver Act (passed in 1950) and the Hart-se Rodino Antitrust Improvements Act (passed in 1976), is to prohibit var agreements among competitors over prices and other matters, to prevent mere whose effect may be to substantially lessen competition, and to provide a metho of dealing with the monopolist that owes its economic position to less that honestly industrial means.