Public Representative would strongly recommend the Postal Service provide the Commission with more solid evidence in support of the assumption that Other “All Standard is less elastic than Standard Flats. Mail” As the Public Representative concludes, it is likely that both Flats and All Other Standard Mail would have the same or nearly the same price elasticities in each year during the 8-year period analyzed. Also, based on the observed elasticities for Standard Mail from the FY 2010, FY2011 and FY2012 demand models, the Standard Mail products might become more elastic in the near future. Based on the conclusions described above, the Public Representative has changed the assumptions regarding own-price elasticities for both Standard models’ Mail Flats and All Other Standard Mail. Table 1 in Attachment 1 provides the comparison between cumulative contribution over 8 years in Scenario 1 and Scenario 2 for and models. It is easy to see that under the changed assumptions “V2a” “V2b” regarding own price elasticities, while maintaining all other assumptions over the 8-year period, the cumulative contribution in nominal prices in Scenario 2 is higher than in Scenario 1. (The difference is $28 or $19 million in models and “V2a” “V2b,” respectively). Also, Scenario 2 shows that full cost coverage is achievable in year 7 with the model, or almost achievable at 95 percent with the model at the “V2a” “V2b” end of the 8-year time frame. Assuming Standard Mail Flats volumes decline, above-cap price increases for Flats should be considered for a longer time period than under the assumption of no volume change. Christensen Associates notes Scenario 2 of the models attempts to explore the suggestion of the Public Representative offered in “V2” Response to the Postal price adjustment Notice of October 11, 2012. In Service’s accordance with the Public in order to achieve full cost Representative’s proposal, coverage for Standard Flats in a 3-year-period, the price increase should include an additional 5.373 percent above CPI during this time. Scenario 2 of the models “V2” assumes the suggested additional price increase for Standard Flats for the first three
Public Representative would strongly recommend the Postal Service provide the Commission with more solid evidence in support of the assumption that “All Other Standard Mail” is less elastic than Standard Flats. As the Public Representative concludes, it is likely that both Flats and All Other Standard Mail would have the same or nearly the same price elasticities in each year during the 8-year period analyzed. Also, based on the observed elasticities for Standard Mail from the FY 2010, FY2011 and FY2012 demand models, the Standard Mail products might become more elastic in the near future. Based on the conclusions described above, the Public Representative has changed the models’ assumptions regarding own-price elasticities for both Standard Mail Flats and All Other Standard Mail. Table 1 in Attachment 1 provides the comparison between cumulative contribution over 8 years in Scenario 1 and Scenario 2 for “V2a” and “V2b” models. It is easy to see that under the changed assumptions regarding own price elasticities, while maintaining all other assumptions over the 8-year period, the cumulative contribution in nominal prices in Scenario 2 is higher than in Scenario 1. (The difference is $28 or $19 million in models “V2a” and “V2b,” respectively). Also, Scenario 2 shows that full cost coverage is achievable in year 7 with the “V2a” model, or almost achievable at 95 percent with the “V2b” model at the end of the 8-year time frame. Assuming Standard Mail Flats volumes decline, above-cap price increases for Flats should be considered for a longer time period than under the assumption of no volume change. Christensen Associates notes Scenario 2 of the “V2” models attempts to explore the suggestion of the Public Representative offered in Response to the Postal Service’s price adjustment Notice of October 11, 2012. In accordance with the Public Representative’s proposal, in order to achieve full cost coverage for Standard Flats in a 3-year-period, the price increase should include an additional 5.373 percent above CPI during this time. Scenario 2 of the “V2” models assumes the suggested additional price increase for Standard Flats for the first three