Technical Conference on Postal Elasticities (RM2014-5)
August 13, 2014

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Some background on why conference was held:
NOTICE AND ORDER SCHEDULING TECHNICAL CONFERENCE
(Issued July 9, 2014)

I. INTRODUCTION

On May 2, 2014, the National Postal Policy Council, the Association for Mail Electronic Enhancement, the Association of Marketing Service Providers, GrayHair Software, Inc., the Greeting Card Association, the International Digital Enterprise Alliance, Inc., the Major Mailers Association, and the National Association of Presort Mailers (Petitioners) filed a petition pursuant to 39 CFR 3050.11.1 The Petition requests that the Commission initiate a proceeding to review and consider improvements to the econometric elasticities demand model used by the Postal Service and the Commission. Petition at 2. Petitioners contend that the econometric volume demand model prepared by the Postal Service materially understates the true price elasticities of demand for major postal products.

First, Petitioners propose that firm-level models of the demand for transactional and marketing mail and similar models for the consumer mail market be developed, with the results aggregated to produce industry-level price elasticities. Second, Petitioners advise re-estimating the econometric demand model by including a factor for electronic diversion.  Finally, Petitioners recommend comparing the elasticities derived from the firm-level models and the modeling of consumer behavior to the elasticities derived from the econometric demand estimates, as a method of corroborating each approach.

II. POSTAL SERVICE ANSWER
On May 9, 2014, the Postal Service filed its answer opposing the Petition.2 The Postal Service contends that a proceeding would serve no useful purpose and that the interests of the Commission and the Postal Service would be better served by focusing their scarce resources elsewhere. Postal Service Answer at 1. The Postal Service also opposes the Petition on the following grounds: (1) the facts used to support the Petition were already considered and rejected by the Commission in Docket No. R2013-11; (2) demand elasticities and other forecasting parameters are outside of the Commission’s purview; (3) a process that contemplates “advance review” of changes in the demand analysis and forecasting models would be unfeasible; and (4) a proceeding would inject consideration of issues currently before the Court of Appeals with respect to the Commission’s decision in Docket No. R2013-11. Finally, the Postal Service suggests that Petitioners pursue their own research or market surveys outside of any involvement by the Commission or the Postal Service.

III. REPLY IN SUPPORT OF PETITION
On May 19, 2014, the Petitioners filed a reply to the Postal Service’s Answer.3 Petitioners state that the analytical principles used in postal demand modeling and volume forecasting methods are subject to the jurisdiction of the Commission. Reply at 3. Petitioners also assert that: (1) any worries that the Commission may prescribe a demand model by regulation are premature; (2) the proceeding is not a collateral attack on the Commission’s decision in Docket No. R2013-11; and (3) it would be unrealistic and unaffordable for Petitioners to develop their own analyses for the Commission’s consideration.

IV. COMMISSION ANALYSIS
The Commission adopted the periodic reporting rules in 39 CFR part 3050 on April 16, 2009.4 In Order No. 203, the Commission clearly stated its intent to define the term “analytical principle” in a way that encompassed the analytical principles used in econometric models of demand.  The Commission agreed with the Postal Service that advance Commission review of the methods of calculating demand elasticities would not be required.  However, the Commission underscored its legitimate needs for estimates of demand elasticity, and its ability to evaluate the methods used to calculate them.

V. INITIAL TECHNICAL CONFERENCE AND COMMENTS
To better evaluate a petition to change an accepted analytical principle, the Commission may order that it be made the subject of discovery. 39 CFR 3050.11(c). Accordingly, as an initial step in this docket, the Commission finds it would be worthwhile to consider the elasticity of demand issue by exploring alternative methods that have already been developed and can be presented for discussion. Therefore, the Commission is scheduling a technical conference on August 13, 2014, at 9:30 a.m., in the Commission’s hearing room. At the conference, Lyudmila Y. Bzhilyanskaya, Margaret M. Cigno, and Edward S. Pearsall will discuss their paper titled “A Branching AIDS Model for Estimating U.S. Postal Price Elasticities.” A copy of this paper is attached to this Order as Attachment A. The Commission stresses that the views expressed in Attachment A are those of its authors and have not been reviewed or endorsed by the Commission or any Commissioner.

Pursuant to 39 U.S.C. 505, Kenneth E. Richardson is designated as officer of the Commission (Public Representative) to represent the interests of the general public in this proceeding. Interested persons may submit comments on Attachment A and matters discussed during the technical conference no later than September 19, 2014.

VI. ORDERING PARAGRAPHS
It is ordered:

1. The Commission establishes Docket No. RM2014-5 for consideration of the matters raised by the Petition filed May 2, 2014.

2. A technical conference is scheduled on August 13, 2014, at 9:30 a.m., in the Commission’s hearing room.

3. Pursuant to 39 U.S.C. 505, the Commission appoints Kenneth E. Richardson to serve as an officer of the Commission (Public Representative) to represent the interests of the general public in this docket.

4. Comments by interested persons, with respect to Attachment A and matters discussed during the technical conference are due no later than September 19, 2014.

5. The Secretary shall arrange for publication of this Order in the Federal Register.

By the Commission.

Shoshana M. Grove
Secretary