Wednesday, June 04, 2014

A tale of two industries: package delivery and Internet service

Why do customers like the package delivery industry and dislike information delivery service? Competition and the US Postal Service.

Comcast CEO Brian Roberts recently complained that Netflix paid the Post Office for delivery of small packages (DVDs), but did not want to pay Internet service providers (ISPs) to deliver the same content over the Internet.

In his view, the Post Office is in the consumer package delivery business and Comcast and other ISPs are in the information delivery business and both should be paid for their service.

The University of Michigan publishes the American Customer Satisfaction Index in which they rate both companies and industries. Let's look at their latest ratings of the consumer package delivery and ISP industries.

They rate 48 industries and it turns out that the package delivery industry is rated seventh overall and the ISP industry is 48th. Furthermore, merger hopefuls Time Warner Cable and Comcast are the lowest rated.

How might we explain the differences in customer satisfaction in these two images that Mr. Roberts considers similar? The difference is that there is competition in customer package delivery between Federal Express, UPS and the Post Office. We would normally expect three companies to tacitly establish oligopoly prices, but in this case the Post Office is disruptive -- Federal Express and UPS must compete with a government agency.

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