Abstract

In the European Union the postal market liberalization path strategy is based on a gradual reduction of the reserved area threshold in both price and weight, aimed at allowing Member States and Postal Operators to prepare for full competition. The competition was supposed to be beneficial to every postal operator, because of equal opportunities to freely compete on an already existing playing level field. However, recent studies (Cohen et al., 2002; 2003; 2004; NERA, 2004) show that low postal volume countries, "coeteris paribus", are more vulnerable than high volume countries to cream skimming strategies. It follows that an effective regulatory framework suitable for low volume countries is to be preferred. The paper describes the regulatory scheme applied to universal postal services in Italy, where the postal market shows peculiar characteristics such as a unsustainable universal service postal market compensated by highly profitable postbank financial services. It is based on both a price and a subsidy cap, the former calculated with a X close to zero (in order to allow a significant cost recovery), the latter with a very tight X (aimed at reducing government subsidies for USO).