[Federal Register Volume 79, Number 141 (Wednesday, July 23, 2014)]
[Proposed Rules]
[Pages 42743-42745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17249]


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POSTAL REGULATORY COMMISSION

[Docket No. RM2014-5; Order No. 2117]

39 CFR Part 3050


Postal Price Elasticities

AGENCY: Postal Regulatory Commission.

ACTION: Petition for rulemaking.

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SUMMARY: The Commission is establishing a rulemaking docket in response 
to a petition concerning price elasticities and internet diversion. The 
Commission has scheduled a technical conference for a public discussion 
based on the filing. This notice informs the public of the filing, the 
scope of the technical conference, and the availability of certain 
related documents. It also invites public comment and takes other 
administrative steps.

DATES: Technical conference: August 13, 2014 (9:30 a.m.). Comments are 
due: September 19, 2014.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov. Those who cannot submit comments 
electronically should contact the person identified in the FOR FURTHER 
INFORMATION CONTACT section by telephone for advice on filing 
alternatives.

FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 
202-789-6820.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Postal Service Answer
III. Reply in Support of Petition
IV. Commission Analysis
V. Initial Technical Conference and Comments
VI. Ordering Paragraphs

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. Id.
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    \1\ Petition to Improve Econometric Demand Equations for Market-
Dominant Products and Related Estimates of Price Elasticities and 
Internet Diversion, May 2, 2014 (Petition).

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[[Page 42744]]

    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. Id. at 14-16. Second, Petitioners 
advise re-estimating the econometric demand model by including a factor 
for electronic diversion. Id. at 16-17. 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. Id. at 17.

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. Id. at 2-5. 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. Id. at 5-6.
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    \2\ Answer of the United States Postal Service in Opposition to 
Petition to Initiate a Proceeding Regarding Postal Demand Analysis, 
May, 9, 2014 (Postal Service Answer).
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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. Id. at 
3-4.
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    \3\ Reply in Support of Petition, May 19, 2014 (Reply). 
Petitioners also filed a motion for leave to file their reply. 
Motion for Leave to File, May 19, 2014. The motion is granted.
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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. Id. at 39-40. The Commission agreed with the Postal Service 
that advance Commission review of the methods of calculating demand 
elasticities would not be required. Id. at 43. However, the Commission 
underscored its legitimate needs for estimates of demand elasticity, 
and its ability to evaluate the methods used to calculate them. Id.
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    \4\ Docket No. RM2008-4, Notice of Final Rule Prescribing Form 
and Content of Periodic Reports, April 16, 2009 (Order No. 203).
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    The Postal Service affirmed this understanding in its comments on 
the proposed periodic reporting rules:

    The Commission, of course, would have the opportunity to react 
to the Postal Service's demand analysis materials in the ACD, or 
later in the year at a time of its own choosing. Over the years, the 
Postal Service has consistently endeavored to respond to the 
Commission's identification of areas of possible improvement in 
demand analysis and forecasting, and there is no reason to believe 
that the Postal Service would forgo the benefits of that practice. 
While this may not be `advance' input like that provided in the 
proposed costing rulemakings, it could perform an essentially 
similar function.

Docket No. RM2008-4, Initial Comments of the United States Postal 
Service in Response to Order No. 104, October 16, 2008, at 29.
    The Commission considers the Petition a request to identify areas 
of possible improvement in demand analysis and forecasting.\5\ To the 
extent that the Petition would require amendment to the Commission's 
rules, it considers the Petition a request pursuant to 5 U.S.C. 553(e) 
to amend the Commission's rules in 39 CFR part 3050.
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    \5\ The Postal Service periodically files with the Commission an 
explanation of its econometric demand equations for market dominant 
products, which describes the Postal Service's current methodology 
to estimate elasticities and demand. The most recent report is 
available at http://www.prc.gov/Docs/89/89962/MD.Prod.Demand.Narrative.pdf.
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    At this juncture, the Commission believes it appropriate to explore 
areas of possible improvement in demand analysis and forecasting. As a 
preliminary step, the Commission intends to explore possible 
improvements to the current method of deriving demand elasticities by 
product.
    Petitioners request that ``the Commission . . . conduct an effort 
to correct the flaws that it has identified in the current demand 
equations.'' Petition at 16. The Commission believes that it may be 
useful to explore deriving separate elasticities for individual 
products. Similarly, separate elasticity of demand may also facilitate 
review of market dominant negotiated service agreements. If data are 
available for actual volume response to price changes, such 
elasticities could be derived by mailer or industry.

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 Library Reference 1. The Commission stresses that the 
views expressed in Library Reference 1 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 Library Reference 1 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.

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    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 Library 
Reference 1 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.
[FR Doc. 2014-17249 Filed 7-22-14; 8:45 am]
BILLING CODE 7710-FW-P