Stamps Going Up, Revenue Going Down

The U.S. Postal Service is raising stamp prices this coming Monday (5/11/2009) from $.42 to $.44.

It lost $1.9 billion during the second quarter of its fiscal year, which began October 1. http://tinyurl.com/dzbyg4. Volume was down 15%; revenue was down 10.5%. However, expenses were only down 4.0%.

In the real world, when a company's sales fall dramatically, particularly when losing customers to a competing company/product, the company typically does two things: (1) cuts expenses, and (2) keeps prices stable or cuts them (many will also create new products that customers desire). When consumers are not paying the prices the company is charging, the company does not increase prices. Doing so would defy common sense. If the consumer doesn't want what you're selling at current prices, are they going to pay more?

In the government world, when an agency is losing money, it raises prices. How? In the case of the USPS, it has the power to tax - raise the prices of stamps.

With the introduction of electronic mail more than a decade ago, the USPS has hemorraged customers. Instead of responding as a company would by innovating, cutting prices, and cutting expenses, it raises taxes (prices). How does the USPS expect such a move to increase revenues to cover not only its third quarter expenses but to cover its $2.3 billion, year-to-date loss?

The common sense question: will more people buy stamps at $.44 than at $.42?