Relative prices and electronic substitution: Changes in household-level demand for postal delivery services from 1986 to 2004

This paper quantifies the extent to which the shift in the aggregate household-level demand for postal delivery services can be attributed to the appearance of alternative modes of communication versus the concomitant rise in postal prices. We find that both recent postal price increases and the penetration of personal computer technology among US households led to similar reductions in postal expenditure. We further find that a 5% postal price increase, such as the one introduced in January 2006 reduces revenue collected from US households by $215 million and imposes an aggregate welfare loss on US households of $333 million.