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by Spixxy on November 24th, 2004

Spixxy

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Why does the price of postage stamps always go up?

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  • by Schlim on August 12th, 2005

    Schlim

    There is a market for postage stamps, just like there's a market for any good. The US Postal Service (USPS) sets its price to maximize the "profit" it will earn. I put "profit" in quotations because it doesn't necessarily mean to make money. You could maximize profit by cutting a $200 per year loss into a $50 per year loss. By doing this, you would reduce the amount that taxpayers would have to pay.

    With a higher price, they will sell fewer stamps, but will make more per stamp. With a lower price, they will sell more stamps, but make less per stamp.

    The USPS will do sensitivity analysis to find out how many fewer stamps they will sell if they raise the price. Clearly, each time they have decided that raising the price of stamps will increase their profits.

    This makes sense, since postage stamps are pretty essential. Not many people will stop sending mail because of a price increase. This is why the price of pens never go up. If the price did go up, I could easily switch to pencils. That's not the case with stamps.

    Some possible reasons for this:
    Increased cost of transporting mail (labor and fuel)
    Slight monopoly (They might be able to charge a higher price without losing too many customers)
    Competitors raising their prices (UPS and Fedex are competititors. If those 2 raise their prices, then USPS can raise their price without losing many customers)

    The last factor is inflation. Over time, the price of everything goes up. Generally, if the price of something stays the same, then the price is considered to have gone down in "real" terms. "Real" means adjusted for inflation.

    Comments

    • Although your answer sounds reasonable, I don't think everything you say is true. Increased costs is usually the reason for increased postage rates. Every one cent per gallon in gas costs the post office $1 million per day. Anyone can look at the price of gas and see that as one cause. Labor costs, health insurance, other costs - they all add up. Other carriers add fuel surcharges, but the postal service doesn't.

      postmuffin

      by postmuffin on August 14th, 2007

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