Federal Register / Vol. 83, No. 156 / Monday, August 13, 2018 / Proposed Rules 39939 

do not individually or cumulatively 

have a significant effect on the human 

environment. This proposed rule 

involves a safety zone lasting 1 hour 15 

minutes that would prohibit entry 

within 500 yards of a fireworks barge. 

Normally such actions are categorically 

excluded from further review under 

paragraph L60(a) of Appendix A, Table 

1 of DHS Instruction Manual 023–01– 

001–01, Rev. 01. A preliminary Record 

of Environmental Consideration 

supporting this determination is 

available in the docket where indicated 

under ADDRESSES. We seek any 

comments or information that may lead 

to the discovery of a significant 

environmental impact from this 

proposed rule. 

G. Protest Activities 

The Coast Guard respects the First 

Amendment rights of protesters. 

Protesters are asked to contact the 

person listed in the FOR FURTHER

INFORMATION CONTACT section to 

coordinate protest activities so that your 

message can be received without 

jeopardizing the safety or security of 

people, places, or vessels. 

V. Public Participation and Request for 

Comments 

We view public participation as 

essential to effective rulemaking, and 

will consider all comments and material 

received during the comment period. 

Your comment can help shape the 

outcome of this rulemaking. If you 

submit a comment, please include the 

docket number for this rulemaking, 

indicate the specific section of this 

document to which each comment 

applies, and provide a reason for each 

suggestion or recommendation. 

We encourage you to submit 

comments through the Federal 

eRulemaking Portal at http://

www.regulations.gov. If your material 

cannot be submitted using http://

www.regulations.gov, contact the person 

in the FOR FURTHER INFORMATION

CONTACT section of this document for 

alternate instructions. 

We accept anonymous comments. All 

comments received will be posted 

without change to http://

www.regulations.gov and will include 

any personal information you have 

provided. For more about privacy and 

the docket, visit http://

www.regulations.gov/privacyNotice. 

Documents mentioned in this NPRM 

as being available in the docket, and all 

public comments, will be in our online 

docket at http://www.regulations.gov 

and can be viewed by following that 

website’s instructions. Additionally, if 

you go to the online docket and sign up 

for email alerts, you will be notified 

when comments are posted or a final 

rule is published. 

List of Subjects in 33 CFR Part 165 

Harbors, Marine safety, Navigation 

(water), Reporting and recordkeeping 

requirements, Security measures, 

Waterways. 

For the reasons discussed in the 

preamble, the Coast Guard proposes to 

amend 33 CFR part 165 as follows: 

PART 165—REGULATED NAVIGATION 

AREAS AND LIMITED ACCESS AREAS 

■ 1. The authority citation for part 165 

continues to read as follows: 

Authority: 33 U.S.C. 1231; 50 U.S.C. 191; 

33 CFR 1.05–1, 6.04–1, 6.04–6, and 160.5; 

Department of Homeland Security Delegation 

No. 0170.1. 

■ 2. Add § 165.T05–0723 to read as 

follows: 

§ 165.T05–0723 Safety Zone; Safety Zone; 

Delaware River; Penn’s Landing; 

Philadelphia, PA; Fireworks Display. 

(a) Location. The following area is a 

safety zone: All waters of the Delaware 

River within a 500-yard radius of the 

fireworks barge, which will be anchored 

in approximate position 39°56′50.35′′ N 

Latitude 075°08′18.27′′ W Longitude. All 

coordinates are based on Datum NAD 

1983. 

(b) Definitions. As used in this 

section, designated representative 

means a Coast Guard Patrol 

Commander, including a Coast Guard 

petty officer, warrant or commissioned 

officer on board a Coast Guard vessel or 

on board a federal, state, or local law 

enforcement vessel assisting the Captain 

of the Port, Delaware Bay in the 

enforcement of the safety zone. 

(c) Regulations. (1) Under the general 

safety zone regulations in subpart C of 

this part—(a) you may not enter the 

safety zone described in paragraph (a) of 

this section unless authorized by the 

COTP or the COTP’s designated 

representative; and (b) all persons and 

vessels in the safety zone must comply 

with all lawful orders or directions 

given to them by the COTP or the 

COTP’s designated representative. 

(2) To request permission to enter the 

safety zone, contact the COTP or the 

COTP’s representative on marine band 

radio VHF–FM channel 16 (156.8 MHz) 

or 215–271–4807. 

(3) No vessel may take on bunkers or 

conduct lightering operations within the 

safety zone during its enforcement 

period(s). 

(4) This section applies to all vessels 

except those engaged in law 

enforcement, aids to navigation 

servicing, and emergency response 

operations. 

(d) Enforcement. The U.S. Coast 

Guard may be assisted in the patrol and 

enforcement of the safety zone by 

federal, state, and local agencies. 

(e) Enforcement period. This zone 

will be enforced from 7:30 p.m. through 

8:45 p.m. on September 16, 2018. 

Dated: August 8, 2018. 

S.E. Anderson, 

Captain, U.S. Coast Guard, Captain of the 

Port Delaware Bay. 

[FR Doc. 2018–17333 Filed 8–10–18; 8:45 am] 

BILLING CODE 9110–04–P 

POSTAL REGULATORY COMMISSION 

39 CFR Part 3015 

[Docket No. RM2017–1; Order No. 4742] 

Competitive Postal Products 

AGENCY: Postal Regulatory Commission. 

ACTION: Proposed rulemaking. 

SUMMARY: The Commission is revising 

its previously proposed rules related to 

the minimum amount that competitive 

products as a whole are required to 

contribute to institutional costs 

annually, based on comments received. 

The Commission invites public 

comment on the revised proposed rules. 

DATES: Comments are due: September 

12, 2018. 

ADDRESSES: Submit comments 

electronically via the Commission’s 

Filing Online system at http://

www.prc.gov. Those who cannot submit 

comments electronically should contact 

the person identified in the FOR FURTHER

INFORMATION CONTACT section by 

telephone for advice on filing 

alternatives. 

FOR FURTHER INFORMATION CONTACT: 

David A. Trissell, General Counsel, at 

202–789–6820. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

II. Organization of Discussion 

III. Background 

IV. Proposed Modified Formula and 

Commission Analysis 

V. Section 703(d) of the PAEA 

VI. Administrative Actions 

VII. Ordering Paragraphs 

I. Introduction 

On February 8, 2018, the Commission 

issued a Notice of Proposed Rulemaking 

(Order No. 4402) proposing that a 

formula be used to calculate the 

minimum amount that competitive 

products as a whole are required to 


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1Notice of Proposed Rulemaking to Evaluate the 

Institutional Cost Contribution Requirement for 

Competitive Products, February 8, 2018 (Order No. 

4402). The Notice of Proposed Rulemaking to 

Evaluate the Institutional Cost Contribution 

Requirement for Competitive Products was 

published in the Federal Register on February 14, 

2018. See 83 FR 6758 (February 14, 2018). 

2The Commission received a range of comments 

related to its proposed formula-based approach and 

its analysis pursuant to the elements of 39 U.S.C. 

3633(b). The Commission has reviewed and 

considered all comments received in response to 

Order No. 4402. For the purposes of this Revised 

Notice of Proposed Rulemaking, the Commission 

addresses those comments that relate to the formula 

modifications the Commission is proposing in this 

Order. Comments received in response to Order No. 

4402 but not addressed in this Order will be 

addressed in a subsequent order in this proceeding. 

3Uncodified section 703 of the PAEA, Public Law 

109–435, 120 Stat. 3198 (2006), directs the 

Commission, when revising regulations under 39 

U.S.C. 3633, to consider subsequent events that 

affect the continuing validity of a Federal Trade 

Commission (FTC) report that analyzed the Postal 

Service’s economic advantages and disadvantages 

in the competitive product market when compared 

to private competitors. See PAEA, 120 Stat. 3244; 

see also Federal Trade Commission, Accounting for 

Laws that Apply Differently to the United States 

Postal Service and its Private Competitors, 

December 2007 (FTC Report), available at: https:// 

www.ftc.gov/sites/default/files/documents/reports/ 

accounting-laws-apply-differently-united-statespostal-service-and-its-private-competitors-report/ 

080116postal.pdf. 

4See Docket No. RM2007–1, Order Proposing 

Regulations to Establish a System of Ratemaking, 

August 15, 2007, at 70 (Order No. 26); Docket No. 

RM2007–1, Order Establishing Ratemaking 

Regulations for Market Dominant and Competitive 

Products, October 29, 2007, at 91, 138 (Order No. 

43); see also Order No. 4402 at 6–7. 

5See Docket No. RM2012–3, Order Reviewing 

Competitive Products’ Appropriate Share 

Contribution to Institutional Costs, August 23, 2012 

(Order No. 1449); see also Order No. 4402 at 7–11. 

6Advance Notice of Proposed Rulemaking to 

Evaluate the Institutional Cost Contribution 

Requirement for Competitive Products, November 

22, 2016 (Order No. 3624). The Advance Notice of 

Proposed Rulemaking to Evaluate the Institutional 

Cost Contribution Requirement for Competitive 

Products was published in the Federal Register on 

November 29, 2016. See 81 FR 229 (November 29, 

2016). 

annually contribute to institutional 

costs (i.e., the appropriate share).1 Order 

No. 4402 was the result of the 

Commission’s second review of the 

appropriate share, conducted pursuant 

to 39 U.S.C. 3633(b) in order to 

determine whether the existing 

appropriate share requirement of 5.5 

percent should be retained, modified, or 

eliminated. See 39 U.S.C. 3633(b); see 

also 39 CFR 3015.7(c). For the reasons 

discussed below, the Commission 

proposes modifications to its formulabased approach and related revisions to 

the proposed rules. 

II. Organization of Discussion 

Section III of this Revised Notice of 

Proposed Rulemaking provides an 

overview of 39 U.S.C. 3633 and a recap 

of the Commission’s two previous 

decisions concerning competitive 

products’ appropriate share. In addition, 

section III provides a synopsis of Order 

No. 4402, including a brief summary of 

the formula-based approach previously 

proposed by the Commission and that 

approach’s compliance with the 

elements set forth in 39 U.S.C. 3633(b). 

Section III also provides a list of 

comments received in response to Order 

No. 4402. 

In section IV, the Commission 

proposes modifications to Order No. 

4402’s formula-based approach. In 

conjunction with the proposed 

modifications, the Commission 

discusses comments received in 

response to Order No. 4402 that directly 

relate to a modification proposed in this 

Order as well as several comments 

applicable to aspects of the formula’s 

calculation.2 As it did in Order No. 

4402, the Commission also analyzes its 

modified proposed formula pursuant to 

the requirements of 39 U.S.C. 3633(b). 

In section V, the Commission affirms 

its finding in Order No. 4402 pursuant 

to section 703(d) of the Postal 

Accountability and Enhancement Act 

(PAEA).3

Section VI takes administrative steps 

to allow for comments on the 

modifications to the proposed formula 

and related revisions to the proposed 

rules by interested persons. 

III. Background 

A. Relevant Statutory Requirements 

The PAEA requires that competitive 

products collectively cover what the 

Commission determines to be an 

appropriate share of the Postal Service’s 

institutional costs. 39 U.S.C. 3633(a)(3). 

The Commission is required to review 

the appropriate share regulation at least 

every 5 years to determine if the 

contribution requirement should be 

‘‘retained in its current form, modified, 

or eliminated.’’ See 39 U.S.C. 3633(b). In 

making such a determination, the 

Commission is required to consider ‘‘all 

relevant circumstances, including the 

prevailing competitive conditions in the 

market, and the degree to which any 

costs are uniquely or disproportionately 

associated with any competitive 

products.’’ 39 U.S.C. 3633(b). Thus, by 

its terms, section 3633(b) establishes 

three separate elements that the 

Commission must consider during each 

review: (1) The prevailing competitive 

conditions in the market; (2) the degree 

to which any costs are uniquely or 

disproportionately associated with 

competitive products; and (3) all other 

relevant circumstances. See Order No. 

4402 at 6. 

B. Previous Commission Decisions 

In promulgating its initial competitive 

product rules in Docket No. RM2007–1, 

the Commission determined that basing 

competitive products’ minimum 

contribution on a percentage of total 

institutional costs was easily 

understood and, in tying it to historic 

contribution at the time, set the 

appropriate share at 5.5 percent.4

The Commission completed its first 

review of the appropriate share, 

pursuant to 39 U.S.C. 3633(b), in Docket 

No. RM2012–3.5 After considering the 

elements established by section 3633(b), 

the Commission determined that the 

appropriate share should be retained at 

5.5 percent. See generally Order No. 

1449. 

C. Current Commission Review: Docket 

No. RM2017–1 

1. Procedural History 

On November 22, 2016, the 

Commission issued an Advance Notice 

of Proposed Rulemaking, which 

established this docket as its second 

review of the appropriate share 

pursuant to 39 U.S.C. 3633(b), 

appointed a Public Representative, and 

provided interested persons with an 

opportunity to comment.6 On February 

8, 2018, after considering initial and 

reply comments received, the 

Commission issued Order No. 4402, 

which responded to comments, 

presented a new formula-based 

approach to setting the appropriate 

share, and provided another 

opportunity for interested persons to 

submit comments. See generally Order 

No. 4402. 

2. Order No. 4402 

In Order No. 4402, the new formulabased approach proposed to set the 

appropriate share through a dynamic 

formula, which would annually update 

the appropriate share percentage based 

on market conditions. Id. at 11–33. 

a. Formula-Based Approach 

The proposed formula-based 

approach used two components to 

annually capture changes in the Postal 

Service’s market power and in the 

overall size of the competitive market: 

The Postal Service Lerner Index and the 

Competitive Market Output. Id. at 15. 

The purpose of the Postal Service 

Lerner Index was to measure the Postal 

Service’s market power within the 

competitive market. Id. at 16. In Order 

No. 4402, the Commission noted that 


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7 Id. at 29. 

8Order No. 4402 at 43–45. The Commission’s 

analysis of ‘‘the degree to which any costs are 

uniquely or disproportionately associated with any 

competitive products’’ relied on current costing 

methodologies approved in Docket No. RM2016–2. 

Id. at 40–45; see Docket No. RM2016–2, Order 

Concerning United Parcel Service, Inc.’s Proposed 

Changes to Postal Service Costing Methodologies 

(UPS Proposals One, Two, and Three), September 

9, 2016 (Order No. 3506). UPS challenged the 

Commission’s costing methodologies approved in 

Order No. 3506 in the United States Court of 

Appeals for the District of Columbia Circuit. See 

Petition for Review, United Parcel Serv., Inc. v. 

Postal Reg. Comm’n, No. 16–1354 (D.C. Cir. filed 

Oct. 7, 2016). The Court issued its opinion on May 

22, 2018. See United Parcel Serv., Inc. v. Postal Reg. 

Comm’n, 890 F.3d 1053 (D.C. Cir. 2018) (UPS). In 

its opinion, the Court denied UPS’s Petition for 

Review and found that the Commission exercised 

reasonable judgment in ‘‘settling on a costattribution methodology that implements its 

statutory mandate and falls well within the scope 

of its considerable discretion.’’ Id. at 1069. UPS 

petitioned for rehearing en banc, which was denied 

by the United States Court of Appeals for the 

District of Columbia Circuit. See Petition for 

Rehearing En Banc, United Parcel Serv., Inc. v. 

Postal Reg, Comm’n, No. 16–1354 (D.C. Cir. filed 

July 6, 2018), denied per curiam, No. 16–1354 (D.C. 

Cir. filed July 27, 2018). 

9Comments of the United States Postal Service in 

Response to Order No. 4402, April 16, 2018 (Postal 

Service Comments); Public Representative 

Comments in Response to Notice of Proposed 

Rulemaking, April 16, 2018 (PR Comments); 

Comments of Amazon.com Services, Inc. on Order 

No. 4402, April 16, 2018 (Amazon Comments); 

Comments of the Greeting Card Association, April 

16, 2018 (GCA Comments); Comments of the Parcel 

Shippers Association, April 16, 2018; Comments of 

Pitney Bowes Inc., April 16, 2018; Initial Comments 

of United Parcel Service, Inc. on Notice of Proposed 

Rulemaking to Evaluate the Institutional Cost 

Contribution Requirement for Competitive 

Products, April 16, 2018 (UPS Comments); 

Declaration of Robert J. Shapiro, April 16, 2018; 

Comments of American Consumer Institute Center 

for Citizen Research Regarding Docket No. 

RM2017–1 Submitted to the Postal Regulatory 

Commission, April 16, 2018. 

10 Declaration of Soiliou Daw Namoro for the 

Public Representative, April 16, 2018 (Namoro 

Decl.); Declaration of J. Gregory Sidak on Behalf of 

United Parcel Service, April 16, 2018 (Sidak Decl.). 

Soiliou Daw Namoro filed in support of the Public 

Representative, and J. Gregory Sidak filed in 

support of UPS. 

market power is a competitor’s ability to 

profitably set prices well above costs 

with little chance that entry or 

expansion by other competitors would 

erode such profits. Id. The Commission 

determined that evaluating the Postal 

Service’s market power allowed it to 

assess whether competition was being 

preserved and whether the Postal 

Service possessed any competitive 

advantage. Id. 

The purpose of the second component 

of the proposed formula, the 

Competitive Market Output, was to 

measure the overall size of the 

competitive market. Id. at 22. The 

Commission proposed evaluating the 

overall size of the market because doing 

so enabled the Postal Service’s market 

power to be placed into context relative 

to the market as a whole. Id. 

With the two components discussed 

above, the Commission proposed 

calculating the appropriate share using 

the following formula: 7

ASt∂1 = ASt * (1 + %DLIt¥1 + 

%DCMOt¥1) 

Iƒ t = 0 = FY 2007, AS = 5.5% 

The Commission proposed measuring 

the year-over-year percentage change in 

the Postal Service Lerner Index and 

Competitive Market Output, weighting 

both components equally. Id. at 29–31. 

As proposed in Order No. 4402, the 

formula’s calculation was recursive with 

the Commission proposing to begin the 

calculation in FY 2007, using an initial 

appropriate share value of 5.5 percent. 

Id. at 31–32. The Commission proposed 

adjusting the appropriate share annually 

by using the formula to calculate the 

appropriate share for the upcoming 

fiscal year. Id. at 30. The appropriate 

share for each upcoming fiscal year 

would be reported in the Commission’s 

Annual Compliance Determination 

(ACD). Id. 

b. Compliance With Statutory 

Requirements 

As part of Order No. 4402, the 

Commission examined how its 

proposed formula-based approach 

complied with section 3633(b) and 

accounted for the requirements of that 

section: (1) The prevailing competitive 

conditions in the market; (2) whether 

any costs are uniquely or 

disproportionately associated with any 

competitive products; and (3) other 

relevant circumstances. 39 U.S.C. 

3633(b); Order No. 4402 at 34–53. For 

prevailing competitive conditions and 

other relevant circumstances, the 

Commission addressed the ways the 

proposed formula captured the 

prevailing competitive conditions and 

other relevant circumstances described 

in previous Commission decisions 

concerning the appropriate share. Id. at 

34–40, 45–51. In addition, the 

Commission found that all costs 

uniquely or disproportionately 

associated with competitive products 

were already attributed to those 

products under the Commission’s 

costing methodology.8

c. Comments in Response to Order No. 

4402 

The Postal Service, the Public 

Representative, Amazon.com Services, 

Inc. (Amazon), the Greeting Card 

Association (GCA), the Parcel Shippers 

Association, Pitney Bowes Inc., United 

Parcel Service, Inc. (UPS), Robert J. 

Shapiro, and the American Consumer 

Institute Center for Citizen Research 

filed comments in response to Order No. 

4402.9 In addition, representatives for 

the Public Representative and UPS filed 

declarations supporting comments on 

Order No. 4402.10

IV. Proposed Modified Formula and 

Commission Analysis 

As noted above, in this Revised 

Notice of Proposed Rulemaking, the 

Commission is proposing modifications 

to both the Postal Service Lerner Index 

and the Competitive Market Output 

previously presented in Order No. 4402. 

As discussed in more detail below, 

these proposed modifications are made 

in response to comments received in 

response to Order No. 4402. The 

Commission proposes modifications to 

the Postal Service Lerner Index in order 

to address concerns related to the 

aggregation of data used in its 

calculation, provide a better measure of 

Postal Service market power, and more 

clearly distinguish the Commission’s 

component from a traditional Lerner 

index. The Commission proposes 

modifications to the Competitive Market 

Output in order to more explicitly 

incorporate Postal Service market share. 

A. Modified Formula-Based Approach 

In this section, the Commission 

reviews pertinent portions of Order No. 

4402, examines relevant comments, 

describes its proposed modifications to 

both components, and discusses the 

resulting formula. 

1. Modification to Postal Service Lerner 

Index 

a. Order No. 4402 

The Postal Service Lerner Index 

component was designed to gauge the 

Postal Service’s market power in the 

competitive market. Order No. 4402 at 

15–16. The Commission determined 

that evaluating the Postal Service’s 

market power enables it to assess 

whether competition is being preserved 

and whether the Postal Service 

possesses a competitive advantage in 

the competitive market. Id. at 16. A 

Lerner index quantitatively assesses 

market power for a given firm by 

measuring the difference between the 

price charged by the firm for a particular 

product and the marginal cost incurred 

by the firm in producing that product. 

Id. at 17. In general, the further a firm 

is able to price its product above 

marginal cost, the more market power 

the firm possesses. Id. 

In Order No. 4402, the Commission 

used a traditional Lerner index as a 


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11Order No. 4402 at 18; see 39 U.S.C. 3652. 

12See 39 U.S.C. 3653. 

13 Id. 

14Sidak Decl. at 30. Price discrimination is a form 

of nonlinear pricing where the same good is sold 

at different prices. See Jeffrey Church & Roger Ware, 

Industrial Organization: A Strategic Approach 157 

(2000) (Church & Ware), available at: https://

works.bepress.com/jeffrey_church/23/. The Postal 

Service regularly enters into NSAs, which are 

contractual agreements between the Postal Service 

and specific mailers providing for customized 

prices and classifications in exchange for volume 

commitments by the mailer. 

15 Id. The Commission provides a simple example 

to explain Sidak’s concern. If the Postal Service 

were to sell 100 parcel deliveries at $5 each to retail 

consumers, and then sell 200 parcel deliveries at $3 

each to a particular mailer pursuant to an NSA, 

then the price of a marginal unit of parcel delivery 

would be $3 (because marginal price is defined as 

the price of the last unit sold), but the average 

revenue for all 300 units sold would be $3.67. 

16 Id. Sidak does not argue that revenue in general 

is inappropriate as a measure of price—only that 

average revenue is an inappropriate measure of 

price because the Postal Service offers NSAs. Id. at 

28–31. Sidak does not suggest an alternative 

measure of price to be used in this case. 

starting point and proposed to develop 

a measure of market power specific to 

the Postal Service using Postal Service 

data. The Commission noted that the 

Postal Service is a multi-product firm, 

with each product having its own 

unique marginal cost and associated set 

of prices. Id. Therefore, in order to 

develop a measure that would be 

applicable to competitive products as a 

whole, the Commission proposed using 

average competitive product marginal 

cost and average competitive product 

price to calculate what it referred to as 

the Postal Service Lerner Index. Id. 

The Commission determined that 

marginal cost data for the Postal 

Service’s competitive products could be 

obtained from the Postal Service’s Cost 

and Revenue Analysis (CRA) report, 

which is submitted to the Commission 

annually as part of the Postal Service’s 

Annual Compliance Report (ACR).11

The Commission uses the CRA report as 

an input to the Postal Service Product 

Finances analysis (PFA), which is 

produced each year as part of the 

Commission’s ACD.12 Order No. 4402 at 

18. The CRA report calculates marginal 

costs using volume-variable costs, 

which are the costs of specific Postal 

Service operations that vary with 

respect to relevant cost drivers. Id. The 

volume-variable costs are then 

distributed to individual Postal Service 

products. Id. Dividing the total volumevariable costs of a product by the 

product’s total volume results in unit 

volume-variable costs, which are 

equivalent to marginal costs. Id. The 

Commission, therefore, proposed to 

divide the sum of all competitive 

product volume-variable costs in the 

PFA by the sum of all competitive 

product volume in order to calculate the 

aggregate competitive product unit 

volume-variable cost. Id. This number is 

equivalent to the average marginal cost 

for all competitive products. 

The Commission determined that the 

price variable could be obtained using 

average revenue-per-piece, which 

incorporates all of the prices for all of 

the Postal Service’s competitive 

products. Id. The PFA presents revenue 

data by product. Id. at 18–19. The 

Commission proposed dividing the sum 

of all competitive product revenue by 

the sum of all competitive product 

volume in order to calculate competitive 

product average revenue-per-piece. Id. 

at 19. This number is equivalent to the 

average price for all competitive 

products. 

Using the two variables described 

above, the Commission developed its 

proposed Postal Service Lerner Index, 

which consisted of the following 

formula: 13

b. Comments 

Multiple commenters address the 

proposed Postal Service Lerner Index. 

Some of these commenters allege that 

the Postal Service Lerner Index suffers 

from a number of defects resulting from 

the aggregation of data. Specifically, 

UPS and Sidak assert that it is improper 

to calculate the Postal Service Lerner 

Index using an average of the marginal 

costs for each of the Postal Service’s 

competitive products. UPS Comments at 

32; Sidak Decl. at 24–26. They contend 

that because the Postal Service is a 

multi-product firm with different cost 

characteristics for each of its products, 

averaging costs across different products 

is misleading. Id. Sidak maintains that 

even if the aggregate Postal Service 

Lerner Index is positive, the Lerner 

index for an individual product could 

still be negative, which could enable the 

Postal Service to engage in below-cost 

pricing for individual products. Sidak 

Decl. at 24. Sidak states that, for a multiproduct firm, economists typically 

develop separate Lerner indices for each 

product. Id. 

UPS asserts that averaging product 

costs together could result in distortions 

and instability in the Postal Service 

Lerner Index following any future 

reclassifications of market dominant 

products as competitive or any future 

changes within the competitive product 

mail mix. UPS Comments at 32–33. UPS 

maintains that such changes would 

result in the composition of products 

within the Postal Service Lerner Index 

shifting for reasons unrelated to changes 

in market conditions. Id. For example, 

if a market dominant product had its 

own Lerner index with a value lower 

than the Postal Service Lerner Index 

(which is the aggregate of all 

competitive products), and that market 

dominant product were to be 

reclassified as a competitive product, 

then its addition to the Postal Service 

Lerner Index would reduce the Postal 

Service Lerner Index’s overall value. 

With regard to the Commission’s 

proposed use of average revenue, UPS 

and Sidak argue that it is improper to 

calculate the Postal Service Lerner 

Index using average revenue as a 

measure of price. UPS Comments at 33; 

Sidak Decl. at 28–31. Sidak asserts that 

average revenue is an inaccurate 

measure of price for a firm that engages 

in price discrimination, as he states the 

Postal Service does through its offering 

of negotiated service agreements 

(NSAs).14 Under these circumstances, 

he notes that as the quantity of a good 

that is sold increases, the price of a 

marginal unit of that good will decrease 

more quickly than average revenue will 

decrease.15 Sidak concludes that 

average revenue can overstate price, and 

a Lerner index built on such data can 

overstate the difference between price 

and marginal costs, thereby serving as 

an inaccurate measure of market 

power.16

c. Commission Analysis and Proposed 

Modification 

After considering the comments 

received, the Commission proposes to 

replace the Postal Service Lerner Index 

with an alternate measurement the 

Commission labels as the Competitive 

Contribution Margin. The Competitive 

Contribution Margin has two primary 

differences when compared to the Postal 

Service Lerner Index: (1) It uses total 


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17A traditional Lerner index is defined by the 

ratio of price minus marginal cost to price. See 

Church & Ware at 31–36. 

18See Order No. 3506 at 60 (directing Postal 

Service to begin basing attributable costs for 

competitive products on incremental costs, which 

include a portion of inframarginal costs). 

19Sidak Decl. at 47, Figure 4 (citing Philippe 

Aghion et al., Competition and Innovation: An 

Inverted-U Relationship, 120 Q.J. Econ. 701, 704 

(2005); Frederick H. deB. Harris, Structure and 

Price-Cost Performance Under Endogenous Profit 

Risk, 35 J. Indus. Econ. 35, 43 (1986)). 

20The difference between total competitive 

product revenue and total competitive product 

attributable costs constitutes the profit derived from 

competitive products. Dividing this difference by 

total competitive product revenue results in the 

profit-to-revenue ratio that Sidak uses. 

competitive product values rather than 

average competitive product values; and 

(2) it uses competitive product 

attributable costs instead of competitive 

product volume-variable costs. The 

formula for calculating the Competitive 

Contribution Margin is as follows: 

This modification presents several 

benefits. First, it addresses an apparent 

misunderstanding with the 

mathematical functioning of the Postal 

Service Lerner Index as initially 

proposed by the Commission. With 

regard to UPS’s and Sidak’s assertions 

that the Postal Service Lerner Index 

inappropriately uses average revenue in 

place of price, Namoro’s declaration 

demonstrates that the use of averages 

has no actual effect on the calculation. 

See Namoro Decl. at 6–7. 

The Postal Service Lerner Index, as 

initially proposed by the Commission, 

used revenue-per-piece (i.e., average 

revenue) and unit volume-variable cost 

(i.e., average cost). Revenue-per-piece is 

calculated by dividing total competitive 

product revenue by total competitive 

product volume, and unit volumevariable cost is calculated by dividing 

total competitive product volumevariable cost by total competitive 

product volume. 

Because every term is divided by 

volume, the volume terms cancel each 

other out, which is mathematically 

demonstrated as follows: 

The final construction of the Postal 

Service Lerner Index shown above is 

mathematically equivalent to the Postal 

Service Lerner Index as originally 

proposed in Order No. 4402, but does 

not use averaging. See id.; see also 

Order No. 4402 at 19. As demonstrated 

above, averaging is immaterial to the 

calculation of this component. For that 

reason, the Commission proposes to 

omit averaging and to use total revenue 

for all competitive products in its 

modified component. Because this 

modification does not affect what the 

component measures, the modified 

component will continue to measure the 

market power of the Postal Service’s 

competitive products as a whole. At the 

same time, the Commission recognizes 

that using total amounts departs 

somewhat from a traditional calculation 

of a Lerner index, which is typically 

calculated using unit cost and unit 

price.17 Therefore, the Commission 

proposes to refer to the modified 

component as the Competitive 

Contribution Margin to distinguish it 

from a traditional Lerner index. 

The second major benefit of this 

modification is that by using total 

attributable costs, it more accurately 

reflects competitive product costs than 

the Postal Service Lerner Index. The 

Postal Service Lerner Index only 

included volume-variable costs, 

whereas the Competitive Contribution 

Margin uses attributable costs, which 

include volume-variable costs, productspecific costs, and inframarginal costs 

calculated as part of each competitive 

product’s incremental costs.18 In 

addition, by incorporating the 

inframarginal costs of competitive 

products collectively, the Competitive 

Contribution Margin also reflects costs 

which are not caused by any one 

competitive product, but by competitive 

products as a whole. Reflecting all costs 

caused by competitive products 

mitigates the risk of overstating the 

Postal Service’s market power in the 

competitive market because the 

modification allows the component to 

more accurately measure the 

relationship between cost and price. 

The third benefit of this proposed 

modification is that it better reflects 

modern economic literature on the 

subject of measuring market power. As 

Sidak notes, ‘‘[e]conomists routinely use 

the ratio of ‘operating profits net of 

depreciation, provisions and an 

estimated financial cost of capital [to] 

sales’ as a proxy for a firm’s Lerner 

[i]ndex.’’ 19 Sidak estimates UPS’s and 

FedEx’s Lerner index values for FY 2017 

using each firm’s operating profit-torevenue ratio. Sidak Decl. at 47. The 

Competitive Contribution Margin 

follows the same calculation outlined in 

the economic literature cited to by 

Sidak, determining the ratio of operating 

profit to revenue.20 This measure is 

frequently referred to in economic 

literature as the price-cost margin. 

With regard to UPS’s and Sidak’s 

concerns that an index which aggregates 


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21See, e.g., Docket No. ACR2007, Annual 

Compliance Determination, March 27, 2008, at 112– 

13; Docket No. ACR2008, Annual Compliance 

Determination, March 30, 2009, at 86–89; Docket 

No. ACR2009, Annual Compliance Determination, 

March 29, 2010, at 117; Docket No. ACR2010, 

Annual Compliance Determination, March 29, 

2011, at 139–40; Docket No. ACR2011, Annual 

Compliance Determination, March 28, 2012, at 156– 

63; Docket No. ACR2012, Annual Compliance 

Determination, March 28, 2013, at 162–72; Docket 

No. ACR2013, Annual Compliance Determination, 

March 27, 2014, at 79–91; Docket No. ACR2014, 

Annual Compliance Determination, March 27, 

2015, at 72–82; Docket No. ACR2015, Annual 

Compliance Determination, March 28, 2016, at 79– 

92; Docket No. ACR2016, Annual Compliance 

Determination, March 28, 2017, at 80–88; Docket 

No. ACR2017, Annual Compliance Determination, 

March 29, 2018, at 82–92 (FY 2017 ACD). 

22For FY 2007 through FY 2016, attributable 

costs were calculated as the sum of volume-variable 

costs and product-specific fixed costs. 

23The smaller increase in attributable costs was 

caused by a decrease in product-specific fixed costs 

of 42 percent. This decrease in product-specific 

fixed costs was primarily driven by a decrease in 

competitive product advertising costs. 

24See Order No. 3506 at 60. 

total costs across multiple competitive 

products could be used to mask belowcost pricing for individual competitive 

products, the Commission finds that 

such a situation is, as a practical matter, 

highly unlikely to occur. First, because 

the PAEA allows the Postal Service to 

retain earnings, the Postal Service is 

incentivized to maximize profits on 

competitive products. To price belowcost for individual competitive products 

would be economically disadvantageous 

for the Postal Service. As the 

Commission noted in Order No. 4402, a 

firm pricing below marginal cost should 

suspend production in the short run, 

and if cost or market characteristics do 

not change, exit the industry in the long 

run. Order No. 4402 at 36 n.63. Second, 

an individual competitive product that 

was priced below cost would violate 39 

U.S.C. 3633(a)(2), which requires each 

competitive product to recover its 

attributable costs. See 39 U.S.C. 

3633(a)(2). Such violations are 

addressed annually in the ACD, with 

the Commission having authority to 

order appropriate remedies.21

With respect to UPS’s concern that 

the effects of future product 

reclassifications or competitive product 

mail mix changes could result in 

distortions, the Commission finds that 

although such a change would alter the 

inputs to the calculation, the 

Competitive Contribution Margin would 

accurately reflect the Postal Service’s 

market power in the expanded (or 

contracted) market that resulted from 

the change. For example, if a market 

dominant product were to be reclassified as competitive, the addition of 

that product to the competitive mail mix 

would change both competitive 

products’ total attributable costs and 

total revenue. However, because the 

Competitive Contribution Margin is 

calculated by subtracting total 

attributable costs from total revenue, 

and dividing that number by total 

revenue, the result would continue to 

indicate how much market power the 

Postal Service possessed after the 

transfer. 

Table IV–1 provides a comparison of 

annual changes in the Competitive 

Contribution Margin and the Postal 

Service Lerner Index. 

TABLE IV–1—COMPARISON OF COMPETITIVE CONTRIBUTION MARGIN AND POSTAL SERVICE LERNER INDEX

Fiscal year 

Competitive 

Contribution 

Margin 

Percentage 

change in 

Competitive 

Contribution 

Margin 

Postal Service 

Lerner Index 

Percentage 

change in 

Postal Service 

Lerner Index 

FY 2007 ............................................................................................... 0.226 N/A 0.228 N/A 

FY 2008 ............................................................................................... 0.213 ¥5.9 0.217 ¥5.1 

FY 2009 ............................................................................................... 0.241 13.4 0.251 15.9 

FY 2010 ............................................................................................... 0.279 15.7 0.298 18.6 

FY 2011 ............................................................................................... 0.257 ¥7.9 0.276 ¥7.3 

FY 2012 ............................................................................................... 0.266 3.7 0.275 ¥0.3 

FY 2013 ............................................................................................... 0.281 5.5 0.290 5.4 

FY 2014 ............................................................................................... 0.282 0.4 0.292 0.8 

FY 2015 ............................................................................................... 0.275 ¥2.6 0.284 ¥2.7 

FY 2016 ............................................................................................... 0.325 18.1 0.332 16.6 

FY 2017 ............................................................................................... 0.329 1.3 0.356 7.5 

As shown in Table IV–1, the growth 

and decline in the two measures is 

generally consistent. Two divergences 

warrant discussion: FY 2012, when the 

Postal Service Lerner Index declined 

while Competitive Contribution Margin 

grew; and FY 2017, when the difference 

between the Postal Service Lerner Index 

and Competitive Contribution Margin 

was more than 6 percentage points. 

As noted above, the Competitive 

Contribution Margin uses attributable 

costs while the Postal Service Lerner 

Index uses only volume-variable costs.22

In a given fiscal year, if the percentage 

growth in attributable costs was greater 

than the percentage growth in volumevariable costs, the Competitive 

Contribution Margin would grow less 

than the Postal Service Lerner Index. If 

the percentage growth in attributable 

costs was less than the percentage 

growth in volume-variable costs, the 

Competitive Contribution Margin would 

grow more than the Postal Service 

Lerner Index. Between FY 2011 and FY 

2012, volume-variable costs increased 

by 27 percent, while attributable costs 

increased by 25 percent.23 Thus, the 

Competitive Contribution Margin grew 

in FY 2012, while the Postal Service 

Lerner Index decreased. 

In FY 2017, the Commission included 

a portion of inframarginal costs in the 

calculation of attributable costs for the 

first time, which increased the overall 

level of cost attribution.24 This resulted 

in attributable costs growing 11 percent 

from FY 2016 to FY 2017, while 

volume-variable costs (which were not 

affected by this methodological change) 

grew only 8 percent during the same 

period. This produced an inverse 

situation to that which occurred in FY 

2012—because the growth in 

attributable costs was greater than 

volume-variable costs, the Competitive 

Contribution Margin grew less than the 

Postal Service Lerner Index. 

These differences reflect how the 

Competitive Contribution Margin more 

accurately measures the Postal Service’s 

market power for competitive products. 

Because the Competitive Contribution 

Margin measures all costs caused by 

competitive products, including those 

that cannot be attributed to any one 


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25See Order No. 4402 at 23. 

26 ‘‘C&M’’ stands for ‘‘Couriers and Messengers,’’ 

the name of the relevant dataset for the Postal 

Service’s competitors within the Census Bureau 

data. See id. at 24. 

competitive product specifically, the 

Competitive Contribution Margin 

provides a more complete view of the 

Postal Service’s market power. For that 

reason, the Commission proposes to 

replace the Postal Service Lerner Index 

with the Competitive Contribution 

Margin in its revised formula. 

2. Modification to Competitive Market 

Output 

a. Order No. 4402 

The second component of the formula 

initially proposed by the Commission 

was the Competitive Market Output, 

which was designed to measure the 

overall size of the competitive market. 

Order No. 4402 at 22. The Commission 

proposed that evaluating the overall size 

of the market provided context for 

assessing the prevailing competitive 

conditions in the market and the Postal 

Service’s market power. Id. The 

Commission stated that the appropriate 

share requirement should balance 

encouraging the Postal Service to 

increase competitive products’ 

contribution to institutional costs when 

the market is growing with the need to 

adjust competitive products’ pricing in 

the event of a market decline. Id. 

The Commission determined that the 

relevant market consisted of two groups: 

The Postal Service’s competitive 

products and ‘‘similar products’’ offered 

by the Postal Service’s competitors. Id. 

The Commission proposed using 

revenue, rather than volume, to measure 

the size of the overall market. Id. at 23. 

This was because revenue data for all 

competitors were available and directly 

comparable, whereas volume data were 

not uniformly available and would 

require frequent adjustments. Id. 

The Commission proposed obtaining 

the necessary revenue data for the Postal 

Service’s competitive products from the 

PFA, which the Commission produces 

every year as part of its ACD. Id. The 

Commission proposed obtaining the 

necessary revenue data for the Postal 

Service’s competitors from two surveys 

conducted by the United States Census 

Bureau: The Quarterly Services Survey 

(QSS) and the Services Annual Survey 

(SAS). Id. The methodology for 

collecting and aggregating these data 

was described in Order No. 4402. Id. at 

22–29. 

Using the foregoing information, the 

Commission developed its proposed 

Competitive Market Output measure, 

which consisted of the following 

formula: 25

Competitive Market Output = 

RevenueUSPS + RevenueC&M 26

b. Comments 

Multiple commenters address the 

proposed Competitive Market Output 

component. These comments can be 

broadly grouped into six different areas. 

First, the Public Representative and 

his declarant, Namoro, both express 

concern that the Competitive Market 

Output component, as proposed, 

disproportionately incorporates 

competitor revenue. Namoro Decl. at 

10–11; PR Comments at 5–6. Namoro 

explains that this is due to the fact that 

not all competitor revenue within 

Competitive Market Output is weighted 

by market share. Namoro Decl. at 10–11. 

As a result, the Public Representative 

and Namoro assert that coordinated 

price increases by the Postal Service’s 

competitors could cause the required 

appropriate share to increase, regardless 

of other market conditions. Id. at 11; PR 

Comments at 5–6. 

Second, several commenters note that 

the Competitive Market Output as 

proposed does not incorporate the 

Postal Service’s market share. Sidak 

observes that the Competitive Market 

Output will not reflect changes in 

market share; it will simply show the 

size of the overall market. Sidak Decl. at 

49–51. Namoro likewise posits that the 

Competitive Market Output as proposed 

implicitly and incorrectly assumes that 

‘‘the Postal Service’s specific gains or 

losses from total market expansion or 

market contraction are irrelevant to the 

computation of the appropriate share[ ] 

. . . .’’ Namoro Decl. at 3. UPS argues 

that the appropriate share should take 

into account how much the Postal 

Service’s competitive products are 

growing within the context of the 

overall market. UPS Comments at 35. 

The Postal Service asserts that under the 

formula as proposed, the appropriate 

share would not decrease if the Postal 

Service were to lose market share but 

the measured Competitive Market 

Output did not also decrease. Postal 

Service Comments at 20. The Postal 

Service states that a circumstance where 

it loses market share without the 

Competitive Market Output similarly 

decreasing is not merely theoretical. Id. 

If the Postal Service’s competitors were 

to begin competing more aggressively or 

shippers and non-traditional 

competitors were to expand their 

delivery operations, then the 

Competitive Market Output (which 

measures the total size of the package 

delivery market) might remain the same 

even as the Postal Service’s individual 

share of the market decreased. Id. at 20– 

21. 

Third, UPS asserts that there is no 

economic basis for linking the size of 

the overall competitive market 

(measured by revenue) with the 

question of what the appropriate share 

should be. UPS Comments at 34. UPS 

states this is because ‘‘[n]either the 

Commission nor the Postal Service ha[s] 

the ability to control what prices are 

charged by other participants in the 

market,’’ and considering market size 

alone ‘‘does not account for the 

possibility of customers making inhouse deliveries, which would not 

impact overall market volume but 

would decrease [the Competitive Market 

Output] nonetheless.’’ Id. at 34–35. The 

Postal Service also notes this issue. It 

states that both the Competitive Market 

Output and the appropriate share could 

increase without necessarily reflecting 

additional market opportunities, for the 

Postal Service or any other package 

delivery company, if there were to be a 

market change towards greater selfdelivery of packages by shippers 

themselves. Postal Service Comments at 

21. 

Fourth, UPS and Sidak both criticize 

the Competitive Market Output for 

measuring output in terms of revenue, 

as opposed to volume. UPS Comments 

at 35; Sidak Decl. at 36–38. Sidak asserts 

that ‘‘a firm’s costs are more directly a 

function of its unit volume than of its 

revenue.’’ Sidak Decl. at 36. 

Furthermore, Sidak maintains that 

‘‘[m]easuring output on the basis of 

revenue can fail to capture market 

growth if competitive pressure 

decreases prices more rapidly than unit 

volume increases, or if growth in 

volume is driven by below-cost 

pricing.’’ Id. Sidak notes that measuring 

industry output by unit volume would 

be consistent with the approach taken 

by other regulatory agencies. Id. at 36– 

38. 

Fifth, the Postal Service criticizes the 

Competitive Market Output for failing to 

take into account inflation, considering 

that the Competitive Market Output 

constitutes an absolute measure of 

market size by revenue, denominated in 

current dollars. Postal Service 

Comments at 21. By presenting growth 

rates in the Competitive Market Output 

based on revenues expressed in nominal 

dollars, rather than constant dollars 

adjusted for inflation, the Postal Service 

maintains that the Competitive Market 

Output includes purely inflationary 

increases in revenue, demand, and 

market power. Id. The Postal Service 


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27Postal Service Comments at 16. Although the 

Postal Service does not explain this particular 

argument in detail, it appears to suggest that to the 

extent the Postal Service’s and its competitors’ 

products are not perfect substitutes for each other, 

those products will not be in direct competition, 

and arguably should not be considered part of the 

same market. Therefore, to the extent that the 

Competitive Market Output includes such products 

in the same market, it could be said to overstate the 

size of the market. 

28See Order No. 4402 at 23. An example of an 

intra-industry transaction is a Postal Service 

competitor transporting a package from a sender in 

California to a recipient’s destination delivery unit 

(i.e., the Postal Service facility where mail carriers 

depart for local mail delivery) in New York. The 

Postal Service would then deliver the package to 

the recipient (i.e., last-mile delivery). 

29The CPI–U is a measure of the average change 

over time in the prices paid by urban consumers for 

a market basket of consumer goods and services. 

See Bureau of Labor Statistics, Consumer Price 

Index, Frequently Asked Questions, available at: 

https://www.bls.gov/cpi/questions-andanswers.htm. 

30Bureau of Labor Statistics, Consumer Price 

Index—All Urban Consumers (Series ID 

CUUR0000SA0),’’ available at: https://data.bls.gov/ 

timeseries/CUUR0000SA0. 

31See Order No. 4402 at 32. For additional 

discussion of the beginning year of the 

Commission’s formula, see section IV.A.3.c, infra. 

32This equation and all equations in this section 

are calculated for t for simplicity of demonstration, 

while the input (i.e., when using the formula to 

determine the appropriate share) is calculated for 

t¥1. 

also asserts that if the Competitive 

Market Output were to grow more 

slowly than inflation, the Competitive 

Market Output growth may not 

accurately reflect growth in the Postal 

Service’s ability to increase competitive 

products’ contribution to institutional 

costs because, in such a situation, 

institutional costs (which are also 

subject to inflation) would be increasing 

faster in real terms than the Postal 

Service’s competitive revenue. Id. at 21– 

22. 

Sixth, the Postal Service asserts that 

the Competitive Market Output fails to 

take into account differentiation 

between the Postal Service’s and its 

competitors’ respective product 

offerings, which can impact the ability 

of competitive products to contribute to 

institutional costs.27

c. Commission Analysis and Proposed 

Modification 

After considering the comments 

received, the Commission proposes to 

replace the Competitive Market Output 

with an alternate measurement the 

Commission labels the Competitive 

Growth Differential. Unlike the 

Competitive Market Output, which 

sought to determine overall market size, 

the Competitive Growth Differential 

assesses the growth or decline of the 

Postal Service’s market position from 

year-to-year. It explicitly incorporates 

the Postal Service’s market share and 

accounts for inflation and whether 

market growth is structural or caused by 

coordinated pricing by competitors. It is 

calculated using the following equation: 

Competitive Growth Differential = 

Market ShareUSPS * 

(%DRevenueUSPS ¥ 

%DRevenueC&M) 

The Competitive Growth Differential 

is calculated by subtracting the yearover-year percentage change in 

competitors’ revenue from the yearover-year percentage change in the 

Postal Service’s competitive product 

revenue to determine the Postal 

Service’s growth relative to that of its 

competitors, and multiplying the result 

by the Postal Service’s market share. 

The Postal Service’s market share is 

determined by dividing the Postal 

Service’s total competitive product 

revenue by the sum of the Postal 

Service’s total competitive product 

revenue and total competitor revenue, 

as depicted in the following formula: 

As with the Competitive Market 

Output, the Competitive Growth 

Differential is measured using revenue, 

rather than volume. As explained in 

Order No. 4402, the Commission selects 

revenue data because volume data 

would need to be adjusted for intraindustry transactions, while revenue 

data can be used directly, without 

adjustment.28 Additionally, revenue 

data are also available for all firms in 

the relevant market through publicly 

available sources, whereas volume data 

for the Postal Service’s competitors are 

not publicly available. Id. 

As with the Competitive Market 

Output, revenue data for the Postal 

Service are obtained from the PFA, and 

revenue data for the Postal Service’s 

competitors are obtained from Census 

Bureau data—specifically the QSS and 

SAS survey data. Unlike the 

Competitive Market Output, revenue 

data under the Competitive Growth 

Differential are adjusted for inflation, 

using the Consumer Price Index for All 

Urban Consumers (CPI–U) as the 

deflator.29 CPI–U data are obtained from 

the Bureau of Labor Statistics (BLS).30

The Commission indexes the CPI–U 

data to FY 2007; that is, FY 2007 

constitutes the base year for any 

inflation adjustment. This aligns the 

CPI–U data with the beginning year for 

the Commission’s proposed formula.31

The Competitive Growth Differential 

better reflects the Postal Service’s 

position in the overall competitive 

market and addresses the concerns 

raised by commenters discussed above. 

First, the change to the Competitive 

Growth Differential eliminates the 

disproportionate inclusion of 

competitor revenue from the 

component’s underlying equation. To 

illustrate this, the Commission starts 

with the formula for calculating the 

year-over-year percentage change in 

Competitive Market Output (which was 

an input into the formula as initially 

proposed in Order No. 4402): 32


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33A simple example can be used to demonstrate 

why this is the case. Consider an entity with two 

products, one generating revenue of $100,000 in FY 

2017 and $105,000 in FY 2018 (a 5-percent yearover-year increase) and the other generating 

revenue of $50,000 in FY 2017 and $55,000 in FY 

2018 (a 10-percent year-over-year increase). If the 

entity were trying to calculate the aggregate rate of 

revenue growth, it would be incorrect to add the 

individual rates of growth (i.e., 5 percent for the 

first product and 10 percent for the second product 

= 15 percent total). Instead, the entity would 

calculate each product’s share of total revenue (i.e., 

$100,000/$150,000 = 66 percent for the first product 

and $50,000/$150,000 = 34 percent for the second 

product), and then multiply each product’s share of 

total revenue by the percentage revenue change 

(i.e., 66 percent * 5 percent = 3.3 percent for the 

first product, and 34 percent * 10 percent = 3.4 

percent for the second product). The final step 

would be to add the two numbers to calculate the 

aggregate rate of revenue growth for the entity (i.e., 

3.3 percent + 3.4 percent = 6.7 percent). 

34For a rigorous demonstration of this 

transformation, see Namoro Decl. at 11–13, 

reproduced in Library Reference PRC–LR–RM2017– 

1/2. 

35Competitors’ market share is determined by 

calculating 1 ¥ Market ShareUSPS. This constitutes 

the residual left over after the Postal Service’s 

market share has been determined. 

36This formula is the result of a three-step 

transformation from the formula directly above it. 

The three-step transformation is demonstrated in 

detail in Library Reference PRC–LR–RM2017–1/2. 

37The Commission notes that this adjustment was 

identified as a possible solution by Namoro in his 

declaration. See Namoro Decl. at 17 n. 12. 

38The Commission found in Order No. 4402 that 

market share was indirectly incorporated into the 

Competitive Market Output because any large shift 

in revenue share between the Postal Service and its 

competitors would be reflected in the Competitive 

Market Output. Order No. 4402 at 38–39. Market 

share is also indirectly incorporated into the 

Competitive Market Output because determining 

growth rates for the Competitive Market Output 

implicitly requires a determination of the Postal 

Service’s market share, as demonstrated in Library 

Reference PRC–LR–RM2017–1/2. 

Although not explicitly depicted in 

the formula, both the change in Postal 

Service revenue and the change in 

competitor revenue are weighted by 

their respective market shares. This is 

because an aggregate rate of growth is 

not equivalent to the sum of individual 

rates of growth.33 The formula is 

therefore mathematically equivalent to 

the following: 

%DCompetitive Market Output 

= (Market ShareUSPS * %DRevenueUSPS

+ ((1 ¥ Market ShareUSPS) 

* (%DRevenue)C&M) 34

Weighting by market share is 

necessary in order to incorporate the 

relative contribution of each source of 

revenue growth to the overall growth. 

As Library Reference PRC–LR–RM2017– 

1/2 illustrates, the year-over-year 

percentage change in the Competitive 

Market Output is equivalent to the yearover-year percentage change in the 

Postal Service’s revenue, weighted by 

the Postal Service’s market share, plus 

the year-over-year percentage change in 

competitors’ revenue, weighted by 

competitors’ market share.35 In order to 

demonstrate how this equation overincorporates competitor revenue, it is 

helpful to state its terms differently. The 

terms of the equation can be 

mathematically rewritten as follows: 

%DCompetitive Market Output 

= ((Market ShareUSPS) * 

(%DRevenueUSPS ¥ 

%DRevenueC&M)) 

+ (%DRevenueC&M) 36

This construction of the Competitive 

Market Output growth rate equation is 

mathematically equivalent to the 

previous construction and demonstrates 

that growth in Competitive Market 

Output constitutes the sum of two 

terms: The market share weighted 

difference in revenue growth between 

the Postal Service and its competitors; 

and the unweighted growth in 

competitor revenue. It is this second 

term (+ (%DRevenueC&M)) that results in 

the disproportionate incorporation of 

competitor revenue because the growth 

in competitor revenue is not weighted 

by market share. The Competitive 

Growth Differential removes the second 

term, thereby resolving the problem of 

disproportionate incorporation of 

competitor revenue.37 Eliminating the 

disproportionate incorporation of 

competitor revenue by adopting the 

Competitive Growth Differential 

addresses the concerns raised by the 

Public Representative and Namoro that 

competitors’ pricing decisions alone 

could influence the appropriate share. 

This modification also changes the 

nature of the component from a measure 

of overall market size to a measure of 

the Postal Service’s market position 

because the modification captures the 

change in the size of the Postal Service’s 

competitive business relative to that of 

the Postal Service’s competitors. 

Additionally, the Competitive Growth 

Differential directly incorporates the 

Postal Service’s market share into the 

appropriate share calculation, which 

addresses comments that the 

Competitive Market Output failed to 

consider the Postal Service’s market 

share.38 The Competitive Growth 

Differential directly incorporates the 

Postal Service’s market share as a 

weight. This ensures that any change in 

the appropriate share due to changes in 

the Competitive Growth Differential are 

not solely driven by growth in the 

overall market but are also reflective of 

whether those changes give the Postal 

Service greater (or reduced) market 

share. This is important because if both 

the Postal Service’s and its competitors’ 

respective revenues increase but the 

Postal Service’s market share remains 

the same, the Postal Service’s relative 

position in the market may not have 

changed. With the Competitive Growth 

Differential, the Commission’s proposed 

formula will now reflect this. Similarly, 

the change from the Competitive Market 

Output to the Competitive Growth 

Differential will prevent the scenario 

identified by the Postal Service in 

which, despite the Postal Service having 

lost market share, the appropriate share 

requirement may not decrease due to 

the size of the overall market remaining 

unchanged. 

With regard to UPS’s assertion that 

there is no economic basis for linking 

the size of the overall competitive 

market to the appropriate share, the 

Commission reiterates its explanation in 

Order No. 4402 that evaluating the 

overall size of the market provides 

context for assessing prevailing 

competitive conditions. See id. at 22. 

The size of the market serves as an 

indicator of how healthy the market is, 

both when the market is considered in 

isolation and when the market is 

considered relative to the broader 

economy. Evaluating the overall size of 

the market is also necessary to 

determine the relative shares of the 

competitors in it. For these reasons, it 

remains appropriate to consider the 

overall size of the competitive market, 

as well as the Postal Service’s position 

in the market, as relevant to the 

appropriate share. 

As discussed above, the Competitive 

Growth Differential tracks changes in 

the market more accurately than the 

Competitive Market Output. It 

accomplishes this by using real revenue 

growth instead of nominal revenue 

growth. The Commission agrees with 

the Postal Service’s suggestion that 

taking into account inflation will 

improve this component of the formula. 

Without such an adjustment, the 

formula could interpret inflationary 

changes in the market as market growth. 

Relatedly, with regard to UPS’s and 

Sidak’s criticisms of this component for 

measuring output in terms of revenue, it 

is true that there are circumstances in 

which using revenue as a measure of 

output could be misleading, such as 

when a firm is attempting to 

strategically price its products at a low 

level in order to gain market share. 

However, because the Competitive 

Growth Differential accounts for 

inflation, those circumstances do not 

apply here. Even if the Postal Service or 

its competitors were to engage in 

strategic pricing in order to gain market 

share, causing revenue to diverge from 

volume, as long as revenue is measured 

in real terms, the Competitive Growth 


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39With regard to Sidak’s assertion that measuring 

industry output by volume would be more 

consistent with practice in other agencies, the 

Commission notes that the use of revenue to 

determine output is consistent with the 

methodology employed by agencies such as the 

United States Department of Commerce, which uses 

revenue as an initial measure of output when 

calculating Gross Domestic Product (GDP). GDP is 

the total expenditure on the economy’s output of 

goods and services. See N. Gregory Mankiw, 

Macroeconomics 18, 27 (7th ed. 2010). For 

information on the use of revenue in calculating 

GDP, see Bureau of Economic Analysis, Concepts 

and Methods of the U.S. National Income and 

Product Accounts, November 2017, at 4–9, 5–30, 

available at: https://www.bea.gov/national/pdf/allchapters.pdf. 

40Should a change be necessary in advance of the 

5-year review, the Commission is also permitted to 

revise its regulations when circumstances warrant. 

See 39 U.S.C. 3633(a); Order No. 1449 at 13. 

41Because the Competitive Growth Differential 

evaluates relative growth rather than absolute 

growth, it is inappropriate to include the absolute 

Competitive Market Output values in this table. No 

corresponding absolute Competitive Growth 

Differential values exist. 

42Order No. 4402 at 29. 

Differential would accurately reflect the 

Postal Service’s relative position in the 

market.39

The Postal Service’s concern that this 

component fails to directly consider 

product differentiation is mitigated by 

the overarching similarities between the 

Postal Service’s and its competitors’ 

products. Furthermore, product 

differentiation would be reflected in the 

Competitive Growth Differential 

because changes in product 

differentiation will affect the relative 

growth in revenue for the Postal Service 

compared to its competitors. This is 

because if the Postal Service’s and its 

competitors’ products became less and 

less interchangeable to the point that 

they were occupying different markets 

with different characteristics, those 

products’ growth rates would be likely 

to diverge, resulting in greater changes 

in the Competitive Growth Differential. 

In addition, such differentiation would 

be reflected by larger increases in the 

Competitive Contribution Margin 

because that index measures the market 

power of the Postal Service; and to the 

extent that the Postal Service has fewer 

competitors, it will have greater market 

power. Further, if differentiation 

between the Postal Service’s and its 

competitors’ products were to occur 

such that the products were no longer 

considered to constitute the same 

market, the 5-year review of the 

appropriate share mandated by 39 

U.S.C. 3633(b) would allow the 

Commission to examine whether the 

data obtained from Census Bureau 

continues to be an appropriate measure 

of competitors’ revenue.40

The Competitive Market Output and 

Competitive Growth Differential results 

for each fiscal year since the PAEA was 

enacted are reported in Table IV–2 

below. 

TABLE IV–2—COMPARISON OF ANNUAL CHANGES IN COMPETITIVE MARKET OUTPUT GROWTH AND COMPETITIVE GROWTH

DIFFERENTIAL 41

Fiscal year 

Competitive 

market 

output growth 

(%) 

Competitive 

growth 

differential 

(%) 

FY 2007 ................................................................................................................................................................... N/A N/A 

FY 2008 ................................................................................................................................................................... ¥1.5 0.7 

FY 2009 ................................................................................................................................................................... ¥13.9 1.2 

FY 2010 ................................................................................................................................................................... ¥0.8 0.9 

FY 2011 ................................................................................................................................................................... 5.3 ¥0.2 

FY 2012 ................................................................................................................................................................... 6.4 2.7 

FY 2013 ................................................................................................................................................................... 5.0 2.5 

FY 2014 ................................................................................................................................................................... 4.7 1.2 

FY 2015 ................................................................................................................................................................... 6.5 0.2 

FY 2016 ................................................................................................................................................................... 5.1 1.4 

FY 2017 ................................................................................................................................................................... 6.3 1.1 

The Competitive Growth Differential 

values differ substantially from the 

Competitive Market Output values 

because they measure different things: 

The Competitive Market Output 

measures absolute growth in the market, 

whereas the Competitive Growth 

Differential measures the Postal 

Service’s growth relative to that of its 

competitors. 

For example, in FY 2008, FY 2009, 

and FY 2010, the Competitive Market 

Output decreased and the Competitive 

Growth Differential increased. This 

occurred because the Postal Service 

maintained (and in some years, 

increased) its competitive product 

output despite a global financial crisis, 

both through NSAs and the 

reclassification of certain market 

dominant products as competitive. As 

such, the Postal Service was able to 

improve its market position relative to 

its competitors, even as the overall 

market declined. In FY 2011, the 

Competitive Growth Differential was 

negative because the Postal Service’s 

competitive revenue displayed no 

material growth, while competitor 

revenue, and hence the overall market, 

grew. This demonstrates that the 

Competitive Growth Differential reflects 

the source of the growth in the market 

in ways that the Competitive Market 

Output did not. Subsequent fiscal years 

reflect similar differences, with the 

Competitive Growth Differential better 

reflecting the Postal Service’s market 

position in the overall competitive 

market than the Competitive Market 

Output would. 

In the next section, the Commission 

discusses the formula proposed in Order 

No. 4402, as well as specific comments 

received related to the operation of the 

formula. The Commission then 

describes how the two modified 

components, the Competitive 

Contribution Margin and the 

Competitive Growth Differential, are 

incorporated into the Commission’s 

proposed formula to calculate the 

appropriate share. 

3. Resulting Formula 

a. Order No. 4402 

In Order No. 4402, the Commission 

proposed calculating the appropriate 

share using the following formula: 42

ATt∂1 = ASt * (1 + %DLIt¥1 + 

%DCMOt¥1) 

If t = 0 = FY 2007, AS = 5.5% 


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43This figure would be expressed as a percentage 

and rounded to one decimal place for simplicity 

and consistency with the Commission’s past 

practice of expressing an appropriate share using 

one decimal place. Id. at 29 n.52. 

44As noted in Order No. 4402, the ‘‘1 +’’ is a 

necessary mathematical concept for any percentage 

change formula in order to incorporate the preexisting value being changed. Id. at 30 n.54; see 

Jagdish Arya & Robin Lardner, Mathematical 

Analysis for Business and Economics 202–03 (2d 

ed. 1985). 

45 Id. at 24. The ‘‘hypothetical’’ appropriate shares 

the Postal Service references can be found in Order 

No. 4402 at 33, Table IV–6, column ‘‘Appropriate 

Share for the Following Year (ASt∂1).’’ 

Where, 

AS = Appropriate Share 43

LI = Postal Service Lerner Index 

CMO = Competitive Market Output 

t = Fiscal Year 

As noted above, under the previously 

proposed formula, the Commission 

would have calculated the year-overyear percentage changes for both the 

Postal Service Lerner Index and 

Competitive Market Output 

components. Id. at 31; see section 

III.C.2.a, supra. In order to calculate an 

upcoming fiscal year’s appropriate share 

percentage (ASt∂1), the formula 

multiplied the sum of the percentage 

changes in the Postal Service Lerner 

Index and the Competitive Market 

Output from the previous fiscal year 44

(1 + %DLIt¥1 + %DCMOt¥1) by the 

current fiscal year’s appropriate share 

(ASt). Order No. 4402 at 30. In addition, 

both components were given equal 

weight in the calculation in order to 

balance changes in the competitive 

market with changes in the Postal 

Service’s market power. Id. at 29–30. 

In order to calculate the appropriate 

share for the current fiscal year, the 

Commission needed to determine the 

beginning appropriate share percentage 

(AS) and the beginning fiscal year (t). 

The Commission proposed to begin the 

calculation in FY 2007, when the PAEA 

was enacted, and set the initial 

appropriate share value at 5.5 percent, 

which was the appropriate share 

initially set by the Commission. Id. at 

32. Both beginning values were chosen 

to allow for incorporation of the changes 

in the competitive market in the years 

since the PAEA’s enactment. Id. Using 

FY 2007 and the 5.5-percent appropriate 

share as the beginning point of the 

formula’s calculation, the Commission 

used the cumulative formula results 

from FY 2008 through FY 2018 in order 

to reach FY 2019’s proposed appropriate 

share (10.8 percent). Id. at 33. 

In Order No. 4402, the Commission 

proposed adjusting the appropriate 

share annually by using the formula to 

calculate the appropriate share for the 

upcoming fiscal year. Id. at 30. Due to 

the timing of when all necessary data 

were available, the Commission 

proposed that the appropriate share 

would be reported as part of the 

Commission’s ACD issued each year in 

March and would take effect at the 

beginning of the following fiscal year on 

October 1. Id. 

b. Comments Concerning Beginning 

Appropriate Share, Beginning Fiscal 

Year, and the Weighting of Components 

In response to Order No. 4402, the 

Commission received comments from 

several parties concerning the beginning 

appropriate share, beginning fiscal year, 

and the weighting of the two 

components of the formula. As these 

comments relate directly to the 

modified formula as well as the 

previously proposed formula, the 

Commission discusses the comments 

received on those three topics in this 

section. 

i. Beginning Appropriate Share 

UPS contends that using 5.5 percent 

as the beginning appropriate share 

percentage is ‘‘irrational’’ because the 

initial 5.5 percent appropriate share was 

an ‘‘intentionally low’’ figure and was 

based on different analysis. UPS 

Comments at 36. UPS states that the 

initial 5.5 percent was set based on 

factors, such as small Postal Service 

market share and the risk of setting 

appropriate share too high, and was 

intended to provide flexibility to the 

Postal Service. Id. UPS maintains 

‘‘[t]hese concerns have no bearing 

today.’’ Id. 

In the Order No. 4402, the 

Commission proposed that the 

appropriate share be modified to better 

reflect the modern competitive market 

that had exhibited changes since the 

Commission’s last appropriate share 

review and the PAEA’s enactment. 

Order No. 4402 at 12. UPS interprets 

this as Commission recognition that the 

5.5-percent appropriate share level is 

‘‘too low given current market 

conditions’’ and thus questions its use 

as the beginning value for the 

Commission’s calculation of the 

appropriate share. UPS Comments at 37. 

UPS contends that if the Commission is 

increasing the appropriate share from 

5.5 percent to better reflect current 

market conditions, the beginning value 

of the appropriate share calculation 

should not be 5.5 percent and instead 

should reflect current market 

conditions. Id. For these reasons, UPS 

recommends the Commission use the 

average revenue share of Postal Service 

competitive products over the last 3 

fiscal years (26.6 percent) as the 

beginning value of the appropriate share 

(AS). Id. at 39–40. 

ii. Beginning Fiscal Year 

UPS and the Postal Service address 

the beginning fiscal year used in the 

proposed formula in their comments. In 

recommending the Commission use 26.6 

percent as the beginning value of the 

appropriate share, UPS notes that 

percentage should be considered ‘‘in the 

Commission’s formula for 2018 and 

onwards,’’ which implies that UPS is 

recommending the Commission change 

the beginning fiscal year (t) to FY 2018. 

Id. at 40. 

The Postal Service recommends that 

the Commission eliminate or reduce the 

appropriate share. Postal Service 

Comments at 3–8. However, if the 

Commission retains the formula, the 

Postal Service alternatively recommends 

that the Commission change the 

formula’s beginning fiscal year (t)to FY 

2017. Id. at 23–24. The Postal Service 

contends there is ‘‘no basis for applying 

the new formula beginning in FY 2007 

and continuing forward on a cumulative 

basis.’’ Id. at 23. 

In Order No. 4402, the Commission 

stated that the formula’s calculation, 

beginning in FY 2007, would be 

recursive in order to capture the 

cumulative effects of changes in 

prevailing competitive conditions in the 

market on the appropriate share. Order 

No. 4402 at 31–32. The Postal Service 

states that the current prevailing 

competitive conditions are already 

captured by the proposed formula’s two 

components and do not need to be 

captured by beginning the formula’s 

calculation in FY 2007. Postal Service 

Comments at 23–24. In addition, the 

Postal Service notes that the formula 

produces a hypothetical appropriate 

share for each fiscal year between FY 

2007 and FY 2017, and that the use of 

those figures is ‘‘inappropriate’’ and 

‘‘arbitrary’’ because the actual 

appropriate share for those same fiscal 

years are known.45 For these reasons, 

the Postal Service maintains that the 

beginning fiscal year (t)‘‘should be FY 

2017, the most recent year in which the 

appropriate share requirement was a 

fixed 5.5 percent,’’ or in the alternative, 

FY 2012, the most recent time the 

Commission reviewed the appropriate 

share. Postal Service Comments at 23. 

iii. Weighting of the Components 

Related to the Commission’s equal 

weighting of both components, Sidak 

asserts that the Commission’s decision 

is an arbitrary one. Sidak Decl. at 39. He 

maintains the Commission provides no 


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46This figure continues to be expressed as a 

percentage and rounded to one decimal place for 

simplicity and consistency with the Commission’s 

past practice of expressing an appropriate share 

using one decimal place. 

47 In response to Order No. 4402, GCA requested 

the Commission confirm that, despite the use of its 

formula-based approach, the appropriate share 

continues to act as a minimum contribution level 

or floor, to be exceeded, if possible. GCA Comments 

at 1–2. As noted in Order No. 4402, ‘‘the 

Commission has and continues to view the 

appropriate share as a minimum requirement.’’ 

Order No. 4402 at 81; see id. at 6 (citing Order No. 

26 at 72). The Commission continues to view the 

appropriate share as a minimum requirement. The 

minimum requirement nature of the appropriate 

share is embodied in the proposed rule itself, which 

states ‘‘. . . the appropriate share of institutional 

costs to be recovered from competitive products 

collectively, at a minimum, will be calculated using 

the following formula. . . .’’ See Order No. 4402, 

Attachment A at 1. 

48See Order No. 4402 at 30. It is important to note 

that, as recently as its FY 2017 ACD, the 

Commission has stated the appropriate share 

requirement of 39 U.S.C. 3633(a)(3) applies to the 

Postal Service annually. See FY 2017 ACD at 92– 

93. Thus, to comply with 39 U.S.C. 3633(a)(3), the 

Postal Service’s competitive products must 

collectively cover the Commission-determined 

appropriate share of institutional costs as set forth 

in 39 CFR 3015.7(c) in each fiscal year. See id. 

Although the Postal Service may exceed this 

minimum contribution level, any contribution that 

exceeds the minimum level cannot be used as a 

form of ‘‘prepayment’’ for future fiscal years. See id. 

49See n.44, supra. 

50As discussed above, the Competitive Growth 

Differential is calculated as follows: Market 

ShareUSPS * (%DRevenuesUSPS ¥%DRevenuesC&M). 

See section IV.2.c, supra. 

reasonable explanation for the equal 

weighting of the components. Id. Sidak 

contends that the Commission failed to 

evaluate whether the two components 

are endogenous, whether a correlation 

exists between the two components and 

attributable costs, or how the formula 

would evolve under alternative weights. 

Id. He suggests the Commission should 

have ‘‘conduct[ed] some research and 

analysis to find the correct ratio’’ of the 

two components. Id. 

c. Commission Analysis and Modified 

Formula 

After consideration of the comments 

received, the Commission elects to 

maintain Order No. 4402’s approach to 

the beginning appropriate share, the 

beginning fiscal year, and the weighting 

of components. In this section, the 

Commission initially discusses the 

modified formula’s configuration and 

then provides its analysis of the 

commenters’ recommendations. 

Based on the proposed modifications 

to both components discussed in 

sections III.A.1 and III.A.2, supra, the 

Commission proposes to calculate the 

appropriate share using the following 

modified formula: 

ASt∂1 = AS * (1 + %DCCMt¥1) 

If t = 0 = FY 2007, AS = 5.5% 

Where: 

AS = Appropriate Share 46

CCM = Competitive Contribution Margin 

CGD = Competitive Growth Differential 

t = Fiscal Year 

Procedurally, the Commission 

proposes that the appropriate share be 

adjusted annually through the same 

process as proposed in Order No. 4402. 

Under that process, the appropriate 

share would be adjusted annually by 

using the formula to calculate the 

minimum appropriate share for the 

upcoming fiscal year.47 The 

Commission also retains that the new 

appropriate share level for the 

upcoming fiscal year would be reported 

as part of the Commission’s ACD.48

In order to calculate an upcoming 

fiscal year’s appropriate share 

percentage (ASt∂1), the modified 

formula multiplies the sum of the 

Competitive Growth Differential and the 

percentage change in the Competitive 

Contribution Margin, (1 + %DCCMt¥1 + 

CGDt¥1),49 by the current fiscal year’s 

appropriate share (ASt). The modified 

formula continues to be recursive in 

nature in order to incorporate year-overyear changes in the competitive market. 

See Order No. 4402 at 31. 

Thus, as an example of how the 

modified formula functions, if the 

following conditions hold: 

• Current year appropriate share is 5.5 

percent (ASt∂1) 

• Competitive Contribution Margin grew by 

6 percent in the prior year (%DCCMt¥1) 

• Competitive Growth Differential 50 was 0.4 

percent when: 

—Postal Service revenue grew 5 percent in 

the prior year (%DRevenueUSPS) 

—Competitor revenue grew 3 percent in 

the prior year (%DRevenueC&M) 

—Postal Service market share was 20 

percent (ShareUSPS) 

Then the appropriate share for the next 

year is calculated as follows: 

Appropriate Share = 0.055* (1 + 0.06 + 

(0.2 *(0.05 ¥ 0.03))) = 0.059 or 

5.9% 

Under this scenario, the next year’s 

appropriate share would be 5.9 percent. 

As noted above, this result will be the 

starting point for calculating the 

appropriate share for the following year. 

Using 5.9 percent as the starting point 

for calculating the appropriate share for 

the following year (ASt=1), if the 

following conditions hold: 

• Competitive Contribution Margin declined 

by 1 percent in the prior year 

(%DCCMt¥1) 

• Competitive Growth Differential was 2.2 

percent, when: 

—Postal Service revenue grew 6 percent in 

the prior year (%DRevenueUSPS) 

—Competitor revenue declined 4 percent 

in the prior year (%DRevenueC&M) 

—Postal Service market share was 22 

percent (ShareUSPS) 

Then the appropriate share for the next 

year is calculated as follows: 

Appropriate Share = 0.059 * (1 ¥ 0.01 

+ (0.22 * (0.06 ¥ (¥0.04)))) 

= 0.06 or 6.0% 

Under this scenario, the next year’s 

appropriate share would be 6.0 percent 

and would become the starting point for 

calculating the appropriate share for the 

next year. 

As it relates to comments received 

concerning the beginning appropriate 

share and beginning fiscal year, the 

Commission finds that it is appropriate 

to use 5.5 percent as the beginning 

appropriate share and FY 2007 as the 

beginning fiscal year when calculating 

the modified formula. Those beginning 

values allow the resulting appropriate 

share to capture the impact of market 

fluctuations on the appropriate share 

over time and moving forward. 

The Commission’s selection of 5.5 

percent as the beginning appropriate 

share does not imply that the 

Commission believes the initial 5.5 

percent set in Docket No. RM2007–1 

was ‘‘too low’’ or ‘‘inadequate’’ as UPS 

suggests. See UPS Comments at 37. To 

the contrary, the initial 5.5 percent 

appropriate share was reasonably based 

on historical contribution. Order No. 

4402 at 7. However, since the PAEA’s 

enactment, the Postal Service, 

competitors, and market conditions 

have changed, and the goal of the 

formula-based approach is to better 

capture these changes both historically 

and moving forward. As a result, UPS’s 

proposed use of Postal Service 

competitive products’ revenue share 

would be inappropriate because it does 

not appropriately reflect market 

conditions in FY 2007 and subsequent 

years. In addition, the use of revenue 

share to begin the calculation of the 

formula is improper for the reasons 

discussed by the Commission in Order 

No. 4402 when it rejected using Postal 

Service competitive products’ revenue 

share to set the appropriate share. See 

Order No. 4402 at 82. Postal Service 

competitive products’ share of revenue 

is not reflective of market conditions, 

the elements of 39 U.S.C. 3633(b), and 

Commission precedent. Id. As discussed 

in Order No. 4402, competitive 

products’ share of revenue is driven in 

large part by market dominant revenue, 

which has been declining due to a 

decline in demand for market dominant 

products. Id. As a result of declining 

market dominant demand and revenue, 

the competitive revenue share has 


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51The components, as applied through the 

formula, also capture other relevant circumstances. 

See section IV.B, infra. 

52 In using the term ‘‘actual appropriate share’’ 

the Commission is referring to the fact that, since 

its regulations in Docket No. RM2007–1 became 

final, as required by the PAEA, the appropriate 

share has remained at 5.5 percent. See supra at 4 

n.4. 

53See Jeffrey M. Wooldridge, Introductory 

Econometrics: A Modern Approach 280–94 (5th ed. 

2013) (Wooldridge); see also Sharon L. Lohr, 

Sampling: Design and Analysis 225–29 (1999). 

54Wooldridge at 280–94. 

increased and is likely to continue to 

increase. However, this increase in 

revenue share has little do with the 

criteria of 39 U.S.C. 3633(b) that drive 

the determination of the appropriate 

share. As a result, use of revenue share 

would be inappropriate because such 

use would allow the appropriate share 

to be substantially impacted by factors 

unrelated to the prevailing market 

conditions and other relevant 

circumstances required pursuant to 39 

U.S.C. 3633(b). 

Additionally, it would be 

inappropriate to begin the formula’s 

calculation in FYs 2012, 2017, or 2018, 

as the Postal Service and UPS 

respectively suggest. Calculating the 

appropriate share beginning in any 

fiscal year other than FY 2007 would 

result in the Commission disregarding 

the cumulative impact that changes in 

market have had on the initial 5.5 

percent appropriate share in the years 

since the PAEA’s enactment. The 

proposed formula’s calculation 

incorporates the changes from those 

fiscal years, a necessary action to better 

capture the impact that changes in 

market conditions have had on the 

appropriate share. 

As noted above, the Postal Service 

makes two specific critiques regarding 

the use of FY 2007 as the beginning 

fiscal year. The Postal Service contends 

that the two components themselves 

reflect current prevailing competitive 

conditions, leaving no reason to begin 

the formula’s calculation in FY 2007 in 

order to capture historical market 

changes. Although it is true both 

components capture changes in 

prevailing competitive conditions in the 

market,51 the beginning fiscal year 

serves a different purpose. The 

components, as applied through the 

formula, capture market changes, 

including prevailing competitive 

conditions, over a single fiscal year. 

However, they do not capture the 

prevailing competitive conditions in the 

market as they have evolved since the 

PAEA’s enactment. As the Commission 

explained in Order No. 4402, it is 

appropriate to set FY 2007 as the 

beginning year for the formula because 

the prevailing competitive conditions in 

the market, as well as other relevant 

circumstances, have changed since FY 

2007. Order No. 4402 at 32. By using FY 

2007 as the beginning year, the 

proposed formula allows the 

appropriate share to reflect the 

cumulative effect of developments in 

competitive market conditions since the 

PAEA’s enactment. 

Additionally, the Postal Service 

maintains that it is inappropriate and 

arbitrary to assign ‘‘hypothetical’’ values 

that represent the appropriate share 

dating back to FY 2007 when the actual 

appropriate share for those fiscal years 

are known. Postal Service Comments at 

24. The Commission acknowledges that 

the actual appropriate share 52 is known 

for prior fiscal years and clarifies that its 

approach does not purport to change the 

actual values for any prior fiscal year. 

However, as explained above, the 

Commission finds that the formula 

should ensure the appropriate share 

reflects the market conditions as they 

have evolved since the PAEA’s 

enactment. As a result, it is neither 

inappropriate nor arbitrary for the 

Commission to use these values to 

determine the impact that market 

changes have had on the appropriate 

share. The formula’s calculation is 

purposefully and appropriately 

cumulative in order to determine this 

impact. 

As it relates to comments received 

concerning the weighting of the two 

components of the formula, the 

Commission finds that it is appropriate 

from both a legal and economic 

perspective to weight the components 

equally. First, from a legal perspective, 

the Commission’s decision to weight 

both components equally is appropriate 

because it is based on the required 

consideration of the statutory criteria set 

forth in 39 U.S.C. 3633(b). The 

Commission notes that the modified 

components measure two discrete 

concepts. As described in sections 

IV.A.1 and IV.A.2, supra, the 

Competitive Contribution Margin 

measures the Postal Service’s absolute 

market power; that is, its own ability to 

raise prices above costs, whereas the 

Competitive Growth Differential 

measures the Postal Service’s market 

position relative to its competitors. 

These concepts measure different 

aspects of the competitive market, as the 

Competitive Contribution Margin 

considers the Postal Service’s market 

power with respect to consumers and 

the Competitive Growth Differential 

measures the Postal Service’s market 

position with respect to competitors. 

Both modified components play critical 

and equal roles in supporting the 

formula’s ability to capture the criteria 

set forth in 39 U.S.C. 3633(b). For 

example—as it relates to capturing 

prevailing competitive conditions in the 

market—the Competitive Contribution 

Margin provides insight into potential 

Postal Service competitive advantage; 

the Competitive Growth Differential 

reflects any changes in Postal Service 

market share; and both are equally 

necessary in order to capture various 

changes to the market and competitors. 

See section IV.B.1, infra. Additionally, 

both modified components play a role 

in capturing each of the other relevant 

circumstances the Commission 

considers. See section IV.B.3, infra. 

Given that neither component is more 

significant than the other in capturing 

the criteria set forth in 39 U.S.C. 

3633(b), the Commission finds it is 

appropriate to weight the components 

equally. 

Second, from an economic 

perspective, the Commission’s decision 

to weight both components equally is 

appropriate. Although Sidak maintains 

that ‘‘from an economic perspective’’ 

the Commission failed to offer a 

reasonable explanation for the formula’s 

configuration and suggests that weights 

be assigned at the component level, 

Sidak’s criticism is problematic for two 

reasons. See Sidak Decl. at 39. First, the 

assignment of weights at the component 

level, without unique economic 

justification, is inconsistent with 

economic practice. Typically, weighting 

is applied in survey analyses to correct 

imperfections in surveys or in 

regression analyses to normalize 

errors.53 In those instances, a unique 

weight is applied to each variable, for 

each observation, using a function or a 

formula.54 Sidak seems to suggest 

weights be assigned as follows: 

Weighted Competitive Contribution 

Margin = Weight * %DCCM 

Weighted Competitive Growth 

Differential = Weight * (Market 

ShareUSPS,t¥1 * (%DRevenueUSPS ¥ 

%DRevenueC&M)) 

However, statistically, a more accurate 

assignment of weights would be as 

follows: 


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55 Id. at 280–94. 

56Related terms are commonly used in 

econometric models. See Wooldridge at 198–200. 

57See id. at 280–94. 

58Source: Library Reference PRC–LR–RM2017–1/ 

2. 

The Commission finds that assigning 

unique weights to each variable in the 

context of the proposed formula would 

be inappropriate without an economic 

rationale for each weight (e.g., to correct 

imperfections (survey analysis) or to 

normalize errors (regression analysis)).55

Sidak does not propose an economic 

rationale for assigning any particular set 

of weights, and the Commission has not 

separately identified any. Without an 

economic rationale or justification, the 

application of unique weights to each 

variable would be artificial and thus 

inappropriate. Id. 

Second, it would be problematic to 

assign weights at the component level 

because both the Competitive 

Contribution Margin and the 

Competitive Growth Differential rely in 

part on a shared input, the Postal 

Service’s competitive product revenue. 

See Order No. 4402 at 18–19, 23; see 

also sections IV.A.1.c and IV.A.2.c, 

supra. For this reason, the components 

are not independent and are considered 

economically related.56 Due to the 

relatedness of variables (i.e., (Revenue) 

from the Competitive Contribution 

Margin and (%DRevenueUSPS) from the 

Competitive Growth Differential), if 

unique weights are assigned to the two 

components, the effect on those 

components and the formula’s 

calculation would be disproportionate. 

To weight the components in a formula 

of this type would be inconsistent with 

statistical practice and would diminish 

the accuracy of the formula by changing 

how the components interact with each 

other.57

Table IV–3 below illustrates the 

calculation using the Commission’s 

revised proposed formula starting with 

an appropriate share of 5.5 percent in 

FY 2007. 

TABLE IV–3—CALCULATION OF APPROPRIATE SHARE, FY 2007–FY 2019 58

Fiscal year 

Appropriate 

share for the 

current year 

(ASt) 

(%) 

Percentage 

change in 

Competitive 

Contribution 

Margin for 

the prior year 

(%DCCMt¥1) 

(%) 

Competitive 

Growth 

Differential for the 

prior year 

(CGDt¥1) 

(%) 

Appropriate 

share for the 

following year 

(ASt + 1) 

(%) 

FY 2007 ................................................................................... 5.5 N/A N/A 5.5 

FY 2008 ................................................................................... 5.5 0.0 0.0 5.5 

FY 2009 ................................................................................... 5.5 ¥5.9 0.7 5.2 

FY 2010 ................................................................................... 5.2 13.4 1.2 6.0 

FY 2011 ................................................................................... 6.0 15.7 0.9 7.0 

FY 2012 ................................................................................... 7.0 ¥7.9 ¥0.2 6.4 

FY 2013 ................................................................................... 6.4 3.7 2.7 6.8 

FY 2014 ................................................................................... 6.8 5.5 2.5 7.3 

FY 2015 ................................................................................... 7.3 0.4 1.2 7.4 

FY 2016 ................................................................................... 7.4 ¥2.6 0.2 7.2 

FY 2017 ................................................................................... 7.2 18.1 1.4 8.6 

FY 2018 ................................................................................... 8.6 1.3 1.1 8.8 

The proposed revised formula and 

each resulting appropriate share 

percentage reflect trends in the market. 

For example, Table IV–3 shows that the 

appropriate share would have decreased 

from FY 2009 to FY 2010 under the 


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59Order No. 4402 at 34–40. The Commission also 

mentioned a purely qualitative factor previously 

considered as a market condition—whether there 

was any evidence of antitrust actions filed against 

the Postal Service. Id. at 34 n.60. The Commission 

found that that factor could not be explicitly 

captured through the proposed quantitative 

formula. Id. However, the Commission did 

determine antitrust actions were implicitly 

captured by the previously proposed formula 

because changes in the Postal Service’s market 

power could offer insight into whether the Postal 

Service was engaging in the kinds of 

anticompetitive behavior that would underlie an 

antitrust action. See id. Because the Competitive 

Contribution Margin continues to measure the 

Postal Service’s market power, the Commission 

finds that the modified formula implicitly captures 

antitrust actions for the same reasons described in 

Order No. 4402. 

60As discussed in Order No. 4402, the 

Commission also uses its analysis required by 

section 703(d) to assess whether Postal Service 

competitive products have a competitive advantage. 

See Order No. 4402 at 35, 54–68. The Commission 

clarifies that a section 703(d) analysis is the primary 

way the Commission assesses whether Postal 

Service competitive products have a competitive 

advantage due to differences in the application of 

federal and state laws to the Postal Service 

compared to competitors. The Commission notes 

that it also uses other factors (e.g., large increases 

in market power or evidence of Postal Service 

predatory pricing) to assess whether the Postal 

Service has a competitive advantage. 

proposed modified formula (comparing 

the second column with the last column 

of the FY 2009 row). This decrease 

would have occurred in response to a 

decline in the Postal Service’s market 

power in FY 2008 (as measured by the 

Competitive Contribution Margin shown 

in the third column of the FY 2009 row) 

largely due to the global financial crisis. 

Although there was an increase in the 

Competitive Growth Differential in FY 

2008 (as shown in the fourth column of 

the FY 2009 row), it would not have 

offset the decline in the Competitive 

Contribution Margin. The appropriate 

share would have also decreased from 

FY 2012 to FY 2013 (comparing the 

second column with the last column of 

the FY 2012 row), again in response to 

a decline in the Postal Service’s market 

power (as measured by the Competitive 

Contribution Margin shown in the third 

column of the FY 2012 row). In this 

case, the decline was due to changes in 

the mail mix that caused competitive 

products’ revenue to increase less than 

attributable costs. Beginning with FY 

2014’s appropriate share, the 

appropriate share would have steadily 

increased as the Postal Service 

expanded its market power and market 

position. As a result, the appropriate 

share for FY 2019 (as indicated in the 

bottom-right cell in Table IV–3) would 

be 8.8 percent under the Commission’s 

modified formula. 

B. Analysis Pursuant to 39 U.S.C. 

3633(b) 

As it did in Order No. 4402, in this 

section, the Commission explains how 

its modified formula captures the 

prevailing competitive conditions in the 

market and other relevant circumstances 

as required by 39 U.S.C. 3633(b). 

Additionally, the Commission addresses 

the remaining element of section 

3633(b)—whether any costs are 

uniquely or disproportionately 

associated with Postal Service 

competitive products. 

1. Prevailing Competitive Conditions in 

the Market 

a. Order No. 4402 

In Order No. 4402, to assess the 

prevailing competitive conditions in the 

market, the Commission considered 

whether there was any evidence of 

Postal Service competitive advantage; 

whether there had been any changes in 

Postal Service market share; and 

whether there had been any changes in 

the package delivery market or to 

competitors since the Commission’s last 

appropriate share review.59

The Commission identified and 

discussed changes in market conditions 

that had occurred since its last 

appropriate share review and 

determined that its formula-based 

approach captured these considerations. 

Order No. 4402 at 34–40. For example, 

the Commission found that the Postal 

Service Lerner Index would reflect any 

Postal Service competitive advantage 

because the more market power the 

Postal Service possesses, the larger the 

Postal Service Lerner Index would be. 

Id. at 35. The Commission also 

determined that the formula would 

capture any evidence of predatory 

pricing because, should the Postal 

Service ever engage in predatory 

pricing, the Postal Service Lerner Index 

value would be negative. Id. at 36–37. 

In addition, the Commission found that 

the formula captured Postal Service and 

competitor market share by revenue 

mainly through the Competitive Market 

Output. Id. at 38–39. Finally, the 

Commission found that changes in the 

market including overall growth, entry 

and exit of firms, and innovation would 

be observed in both the Postal Service 

Lerner Index and Competitive Market 

Output. Id. at 39–40. 

b. Modified Formula’s Compliance With 

Section 3633(b) 

Despite modifications to the 

previously proposed components, the 

modified formula captures the 

prevailing competitive conditions in the 

market. First, similar to the Postal 

Service Lerner Index, the Competitive 

Contribution Margin provides insight 

into whether the Postal Service 

possesses a competitive advantage.60

The higher the Competitive 

Contribution Margin, the more market 

power the Postal Service possesses. Any 

large increases in the Competitive 

Contribution Margin may indicate a 

competitive advantage under certain 

circumstances. Just as with the Postal 

Service Lerner Index, the Competitive 

Contribution Margin also indicates 

whether the Postal Service is engaging 

in predatory pricing because the 

resulting Competitive Contribution 

Margin would be negative. If the Postal 

Service were engaging in predatory 

pricing, its attributable costs would be 

greater than its revenue, and, as 

calculated in the Competitive 

Contribution Margin, the difference 

between them would be less than zero, 

resulting in a negative value. Figure IV– 

1 below displays the Competitive 

Contribution Margin from FY 2007 to 

FY 2017. 


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61Source: Library Reference PRC–LR–RM2017–1/ 

2. 

62Each example assumes all other factors remain 

constant. 

As shown in Figure IV–1, the 

Competitive Contribution Margin has 

never been negative. As a result, the 

Commission continues to find no 

evidence of Postal Service predatory 

pricing. The Commission maintains that 

the use of the Competitive Contribution 

Margin in its modified formula will 

provide an ongoing indication of 

whether the Postal Service is engaging 

in predatory pricing. 

Second, the change in the Postal 

Service’s market share by revenue 

would be reflected in the Competitive 

Growth Differential even more so than 

the Competitive Market Output 

component of the previously proposed 

formula. Unlike the Competitive Market 

Output, which reflected market share in 

its composition, the Competitive 

Growth Differential directly 

incorporates Postal Service market share 

into the calculation of the appropriate 

share, as discussed in section IV.A.2.c, 

supra. If the Postal Service’s market 

share were to grow from an increase in 

revenue, the Competitive Growth 

Differential would increase, thereby 

increasing the appropriate share if all 

other factors were to remain constant. If 

the Postal Service’s market share were 

to decline from a decrease in revenue, 

the Competitive Growth Differential 

would decrease, thereby decreasing the 

appropriate share if all other factors 

were to remain constant. Additionally, 

similar to the Postal Service Lerner 

Index, any growth or decline in the 

Postal Service’s market share caused by 

shifts in demand or pricing strategies 

would be reflected in the Competitive 

Contribution Margin because such shifts 

would affect the Postal Service’s ability 

to price above costs and therefore its 

market power. See Order No. 4402 at 39. 

Finally, changes in the market and to 

competitors, such as overall market 

growth, firm entry or exit from the 

market and innovation, are reflected by 

both of the modified components. For 

example,62 if a firm enters the market 

and generates new business, competitor 

revenue relative to the Postal Service’s 

revenue would increase, thereby 

decreasing the Competitive Growth 

Differential. Alternatively, if a firm 

enters the market and takes business 

from the Postal Service—whether 

through pricing or innovation—the 

Postal Service would have to price 

closer to marginal cost to remain 

competitive, thereby reducing the 

Competitive Contribution Margin. 

However, if a firm exits the market and 

the business it used to generate is lost, 

it could cause a decrease in competitor 

revenue and an increase the Postal 

Service’s market share, thereby 

increasing the Competitive Growth 

Differential. These various examples 

illustrate the modified formula’s ability 

to capture overall changes, including 

expansion or retraction in the 

competitive market. 

2. Unique or Disproportionate Costs 

As previously noted, the second 

element of section 3633(b) is that the 

Commission must consider ‘‘the degree 

to which any costs are uniquely or 

disproportionately associated with any 

competitive products.’’ See 39 U.S.C. 

3633(b); see section III.A, supra. The 

analysis of this second element differs 

from the other elements in section 

3633(b) because the Commission’s 

consideration of the second element is 

unrelated to the Commission’s formulabased approach. 

For that reason, in Order No. 4402, 

the Commission’s discussion of whether 

any costs are uniquely or 

disproportionately associated with any 

competitive product relied on its 

current costing methodologies. See 

Order No. 4402 at 43–45. The 

Commission’s current costing 

methodology attributes all reliably 

identifiable, causally related costs that 

can be traced to individual products to 

those products and was recently upheld 


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63 Id.; see generally UPS, 890 F.3d 1053. 

64See, e.g., Amazon Comments at 8–11; Postal 

Service Comments at 4–5, 13, 16, 26–28; Sidak 

Decl. at 53–55. 

by the D.C. Circuit.63 The requirement 

that cost attribution must be based on 

reliably identified causal relationships 

comes from the PAEA. Order No. 4402 

at 43 (citing 39 U.S.C. 3622(c)(2)). The 

Commission noted that ‘‘[b]y definition, 

costs identified as institutional are those 

that cannot be causally linked to any 

specific product’’ and found that there 

were no costs uniquely associated or 

disproportionately associated with any 

competitive products that were not 

already attributed to competitive 

products under the Commission’s 

methodology. Id. at 43–44. 

The Commission’s discussion on 

whether any costs were uniquely 

associated or disproportionately 

associated with any competitive 

products elicited multiple comments.64

However, as this Revised Notice of 

Proposed Rulemaking is concentrated 

on modifications to its proposed 

formula-based approach, the 

Commission will address the comments 

related to ‘‘the degree to which any 

costs are uniquely or disproportionately 

associated with any competitive 

products’’ in a subsequent order. 

3. Other Relevant Circumstances 

a. Order No. 4402 

In its assessment of other relevant 

circumstances in Order No. 4402, the 

Commission considered the effects of: 

(1) Products which have been 

transferred from the market dominant 

product list to the competitive product 

list since the Commission’s last review 

of the appropriate share; (2) changes to 

the mail mix (i.e., the relative 

proportions of individual mail products’ 

volumes within the overall postal 

system) since the last review of the 

appropriate share; (3) uncertainties in 

the marketplace; and (4) the risks 

associated with setting the appropriate 

share either too high or too low. Order 

No. 4402 at 45–53. The Commission 

identified and discussed changes in 

these relevant circumstances and 

determined that all were reflected in its 

proposed formula-based approach. Id. 

First, the Commission identified 

product transfers since its last review of 

the appropriate share and determined 

that they were reflected in the 

previously proposed formula because 

the transferred products’ revenue was 

automatically included in the Postal 

Service’s portion of the Competitive 

Market Output, and the transferred 

products’ revenue-per-piece and unit 

volume-variable cost were incorporated 

into the composition of the Postal 

Service Lerner Index. Id. at 46. 

Second, the Commission noted that 

the Postal Service has experienced mail 

mix changes since the Commission’s 

last review of the appropriate share, as 

market dominant volumes have 

continued to decline and competitive 

volumes have continued to increase. Id. 

at 46–49. The Commission determined 

that the formula’s Competitive Market 

Output component incorporated 

changes in the Postal Service’s mail mix 

by including revenue that the Postal 

Service received from any increase in 

competitive product volume. Id. at 48– 

49. Likewise, the Postal Service Lerner 

Index would reflect the growth or 

decline of competitive products with 

varying degrees of profitability. Id. 

Third, with regard to market 

uncertainties, the Commission 

explained that ‘‘shifts in market demand 

or macroeconomic conditions would be 

reflected in the appropriate share 

determination through changes in the 

Postal Service Lerner Index and 

Competitive Market Output.’’ Id. at 49. 

The Commission also noted that the last 

5 years have been a time of significant 

innovation and development in the 

delivery industry, and that it is 

important for the Commission’s 

proposed formula-based approach to be 

able to incorporate such changes. Id. For 

potential competitor innovation or 

changes in e-commerce, the 

Commission explained that both would 

be reflected in the Competitive Market 

Output because competitor revenue 

would change as their innovations 

succeeded or failed. Id. The 

Commission also noted it was possible 

for competitor innovation to affect the 

Postal Service Lerner Index should it 

cause the Postal Service to alter its 

pricing of competitive products. Id. at 

49–50. 

Finally, the Commission has 

consistently recognized that there are 

risks inherent in setting the appropriate 

share either too high or too low. Id. at 

50–51; see also Order No. 1449 at 12. If 

the appropriate share were set too high, 

the Postal Service would be forced to 

raise its prices to non-competitive 

levels. Order No. 4402 at 50. If the 

appropriate share were set too low, the 

Postal Service might be incentivized to 

discount its prices in order to gain 

market share. Id. at 50. The Commission 

found that its proposed formula should 

limit increases in the appropriate share 

to no higher than appropriate to account 

for the Postal Service’s growth in market 

power and the growth of the market as 

a whole. Id. With regard to the risk of 

the appropriate share being set too low, 

the Commission noted that price 

discounting on the scale necessary to 

gain market share would come at the 

expense of the Postal Service’s overall 

profitability. Id. at 50–51. The 

Commission therefore concluded that 

the Postal Service possesses little 

incentive to engage in such behavior. Id. 

at 51. 

b. Modified Formula’s Compliance With 

Section 3633(b) 

Despite changes to the previously 

proposed components, with the 

Competitive Contribution Margin and 

the Competitive Growth Differential, the 

modified formula captures other 

relevant circumstances. First, the 

modified formula continues to capture 

changes caused by Postal Service 

product transfers to the competitive 

product list. When a product is 

transferred from the market dominant to 

the competitive product list, the 

modified formula continues to 

incorporate it directly through the 

Competitive Growth Differential 

because the modified component 

continues to include the transferred 

product’s revenue as part of the Postal 

Service’s revenue. The effect of product 

transfers would also be reflected in 

changes in Postal Service market share 

because market share is calculated 

using, in part, Postal Service revenue, 

which would include the revenue of any 

transferred product. In addition, the 

transferred product’s attributable costs 

and revenue are incorporated into the 

Competitive Contribution Margin. Any 

change in the Competitive Contribution 

Margin resulting from a transfer reflects 

the Postal Service’s market power in the 

expanded competitive market, as 

discussed above. See section IV.A.1.c, 

supra. 

Second, as it relates to changes in the 

mail mix, the Commission noted in 

Order No. 4402 that mail mix changes 

occur as demand for postal products 

shifts. Order No. 4402 at 46. Most 

recently, Postal Service market 

dominant product demand has 

decreased, while demand for its 

competitive products has increased. Id. 

at 46–48. The modified formula 

captures these mail mix changes as the 

Competitive Growth Differential reflects 

the revenue the Postal Service receives 

from any increase in competitive 

product volume. The Competitive 

Contribution Margin, similar to the 

Postal Service Lerner Index, would 

reflect the growth or decline of very 

profitable or less profitable competitive 

products. See id. at 48–49. 

Third, regarding market uncertainties, 

the modified formula captures changes 

in market demand or other 

macroeconomic conditions through 


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65See Order No. 4402 at 50–51. The modified 

formula continues to be calculated with a time lag 

that further discourages price discounting by the 

Postal Service because the negative consequences 

would appear before the benefits. See id. at 51. 

66See id. at 54–58. 

67See PAEA, 120 Stat. 3244; see also S. Rep. No. 

108–318 at 29 (2004); PAEA section 703(a) and (b). 

Section 703 was not codified and is reproduced in 

the notes of 39 U.S.C.A. 3633. See also FTC Report. 

68PAEA section 703(d). 

69The Commission’s discussion on the FTC 

Report and section 703 elicited multiple comments. 

See, e.g., UPS Comments at 22–26; Sidak Decl. at 

6, 9–15, 52–53. However, as this Revised Notice of 

Proposed Rulemaking is concentrated on 

modifications to the proposed formula-based 

approach, the Commission will address the 

comments received on the FTC Report and section 

703(d) in a subsequent order. 

70The Commission makes one revision to 

proposed § 3015.7(c)(1). The Commission replaces 

the formula proposed in Order No. 4402 with the 

formula proposed in this Revised Notice of 

Proposed Rulemaking. The proposed rules are set 

forth below the signature of this Order. 

changes in either of the modified 

components. For example, if demand in 

the market declines, because of a 

recession or other conditions, there may 

be downward pressure on prices in the 

market. This occurrence may cause the 

Postal Service to reduce its prices in 

order to preserve volume, reducing the 

Completive Contribution Margin. Other 

competitors may reduce prices as well, 

resulting in changes to the market 

overall; an occurrence that would be 

reflected in the Competitive Growth 

Differential. 

The Commission also finds that its 

modified formula should capture efforts 

to innovate or changes in e-commerce, 

accomplishing the same objective as the 

previously proposed formula. The 

Competitive Growth Differential 

captures these changes as they affect the 

Postal Service’s position in the market. 

For example, if competitors in the 

aggregate were to successfully innovate 

and generate more revenue relative to 

the Postal Service, the Competitive 

Growth Differential would decrease if 

all other factors were to remain 

constant. If the Postal Service were to 

successfully innovate and generate more 

revenue relative to its competitors, the 

Competitive Growth Differential would 

increase if all other factors were to 

remain constant. 

Finally, in terms of the risk involved 

with setting the appropriate share too 

high, the Commission finds that this 

risk is addressed by the modified 

formula, just as it was by the previously 

proposed formula. The modified 

formula continues to limit increases in 

the appropriate share to no higher than 

appropriate to account for the Postal 

Service’s growth in market power and 

for growth in the Postal Service’s market 

position. In terms of the risks involved 

in setting the appropriate share too low 

and allowing the Postal Service to gain 

market share by discounting prices, the 

Commission continues to find that this 

risk is minimal. As noted in Order No. 

4402, the Postal Service has little 

incentive to discount prices in order to 

gain market share because discounting 

prices to gain market share would 

decrease the Postal Service’s 

profitability at a time when it continues 

to face financial challenges.65

V. Section 703(d) of the PAEA 

As discussed in Order No. 4402,66 in 

order to determine whether Postal 

Service competitive products enjoyed 

advantages over private carriers, 

Congress directed the FTC to prepare a 

report identifying federal and state laws 

that apply differently to the Postal 

Service’s competitive products than 

similar products offered by private 

competitors and to account for the net 

economic effect resulting from such 

differences.67 Additionally, section 

703(d) directs the Commission, when 

revising regulations under 39 U.S.C. 

3633, to consider subsequent events that 

may affect the continuing validity of the 

FTC’s net economic effect finding.68

Order No. 4402 presented the first 

proposed revision to a regulation issued 

under 39 U.S.C. 3633 since the PAEA’s 

enactment. The Commission provided 

its analysis pursuant to section 703(d) in 

Order No. 4402. Order No. 4402 at 54– 

68. In that analysis, the Commission 

discussed the FTC Report and its 

findings, defined the scope of its review 

pursuant to section 703(d), and 

performed the required analysis based 

on the statute. Id. The comments 

received in response to Order No. 4402 

have not identified any subsequent 

events pursuant to the Commission’s 

interpretation of section 703(d) that 

were not addressed in Order No. 4402 

or that have subsequently occurred.69

The Commission also has not identified 

any subsequent events that would affect 

its section 703(d) analysis in Order No. 

4402. As such, the Commission affirms 

its finding in Order No. 4402 that the 

FTC’s conclusion that the Postal Service 

operates at a net economic disadvantage 

continues to be valid. 

VI. Administrative Actions 

Additional information concerning 

this rulemaking may be accessed via the 

Commission’s website at http://

www.prc.gov. Interested persons may 

submit comments on the modified 

formula-based approach and related 

revisions to proposed rules 70 no later 

than 30 days after the date of 

publication of this Revised Notice of 

Proposed Rulemaking in the Federal 

Register. Pursuant to 39 U.S.C. 505, 

Kenneth R. Moeller continues to be 

designated as an officer of the 

Commission (Public Representative) to 

represent the interests of the general 

public in this proceeding. 

The Regulatory Flexibility Act 

requires federal agencies, in 

promulgating rules, to consider the 

impact of those rules on small entities. 

See 5 U.S.C. 601, et seq. (1980). If the 

proposed or final rules will not, if 

promulgated, have a significant 

economic impact on a substantial 

number of small entities, the head of the 

agency may certify that the initial and 

final regulatory flexibility analysis 

requirements of 5 U.S.C. 603 and 604 do 

not apply. See 5 U.S.C. 605(b). In the 

context of this rulemaking, the 

Commission’s primary responsibility is 

in the regulatory oversight of the United 

States Postal Service. The rules that are 

the subject of this rulemaking have a 

regulatory impact on the Postal Service, 

but do not impose any regulatory 

obligation upon any other entity. Based 

on these findings, the Chairman of the 

Commission certifies that the rules that 

are the subject of this rulemaking will 

not have a significant economic impact 

on a substantial number of small 

entities. Therefore, pursuant to 5 U.S.C. 

605(b), this rulemaking is exempt from 

the initial and final regulatory flexibility 

analysis requirements of 5 U.S.C. 603 

and 604. 

VII. Ordering Paragraphs 

It is ordered: 

1. Interested persons may submit 

comments no later than 30 days from 

the date of the publication of this notice 

in the Federal Register. 

2. Pursuant to 39 U.S.C. 505, Kenneth 

R. Moeller continues to be appointed to 

serve as the Public Representative in 

this proceeding. 

3. The Secretary shall arrange for 

publication of this Order in the Federal 

Register. 

By the Commission. 

Stacy L. Ruble, 

Secretary. 

List of Subjects for 39 CFR Part 3015 

Administrative practice and 

procedure. 

For the reasons stated in the 

preamble, the Commission proposes to 

amend chapter III of title 39 of the Code 

of Federal Regulations as follows: 

PART 3015—REGULATION OF RATES 

FOR COMPETITIVE PRODUCTS 

■ 1. The authority citation for part 3015 

continues to read as follows: 


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Federal Register / Vol. 83, No. 156 / Monday, August 13, 2018 / Proposed Rules 39957 

1PM2.5 refers to particulate matter of 2.5 microns 

or less in diameter, often referred to as ‘‘fine’’ 

particles. 

Authority: 39 U.S.C. 503; 3633. 

■ 2. Amend § 3015.7 by revising 

paragraph (c) to read as follows: 

§ 3015.7 Standard for compliance. 

* * * * * 

(c)(1) Annually, on a fiscal year basis, 

the appropriate share of institutional 

costs to be recovered from competitive 

products collectively, at a minimum, 

will be calculated using the following 

formula: 

ASt∂1 = ASt * (1 + %DCCMt¥1 + 

CGDt¥1) 

Where, 

AS = Appropriate Share, expressed as a 

percentage and rounded to one decimal 

place 

CCM = Competitive Contribution Margin 

CGD = Competitive Growth Differential 

t = Fiscal Year 

If t = 0 = FY 2007, AS = 5.5 percent 

(2) The Commission shall, as part of 

each Annual Compliance 

Determination, calculate and report 

competitive products’ appropriate share 

for the upcoming fiscal year using the 

formula set forth in paragraph (c)(1) of 

this section. 

[FR Doc. 2018–17221 Filed 8–10–18; 8:45 am] 

BILLING CODE 7710–FW–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R01–OAR–2018–0138; FRL–9981–85– 

Region 1] 

Air Plan Approval; Maine; 

Infrastructure State Implementation 

Plan Requirements for the 2012 PM2.5

NAAQS 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing to approve 

elements of a State Implementation Plan 

(SIP) submission from Maine that 

addresses the infrastructure 

requirements of the Clean Air Act (CAA 

or Act) for the 2012 fine particle (PM2.5) 

National Ambient Air Quality Standard 

(NAAQS). EPA is also proposing to 

conditionally approve one sub-element 

of Maine’s infrastructure SIP. The 

infrastructure requirements are designed 

to ensure that the structural components 

of each state’s air quality management 

program are adequate to meet the state’s 

responsibilities with respect to this 

NAAQS under the CAA. 

DATES: Comments must be received on 

or before September 12, 2018. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R01– 

OAR–2018–0138 at https://

www.regulations.gov, or via email to 

conroy.dave@epa.gov. For comments 

submitted at Regulations.gov, follow the 

online instructions for submitting 

comments. Once submitted, comments 

cannot be edited or removed from 

Regulations.gov. For either manner of 

submission, the EPA may publish any 

comment received to its public docket. 

Do not submit electronically any 

information you consider to be 

Confidential Business Information (CBI) 

or other information whose disclosure is 

restricted by statute. Multimedia 

submissions (audio, video, etc.) must be 

accompanied by a written comment. 

The written comment is considered the 

official comment and should include 

discussion of all points you wish to 

make. The EPA will generally not 

consider comments or comment 

contents located outside of the primary 

submission (i.e. on the web, cloud, or 

other file sharing system). For 

additional submission methods, please 

contact the person identified in the FOR

FURTHER INFORMATION CONTACT section. 

For the full EPA public comment policy, 

information about CBI or multimedia 

submissions, and general guidance on 

making effective comments, please visit 

www.epa.gov/dockets/commenting-epadockets. Publicly available docket 

materials are available at https://

www.regulations.gov or at the U.S. 

Environmental Protection Agency, EPA 

New England Regional Office, Office of 

Ecosystem Protection, Air Quality 

Planning Unit, 5 Post Office Square— 

Suite 100, Boston, MA. EPA requests 

that if at all possible, you contact the 

contact listed in the FOR FURTHER

INFORMATION CONTACT section to 

schedule your inspection. The Regional 

Office’s official hours of business are 

Monday through Friday, 8:30 a.m. to 

4:30 p.m., excluding legal holidays. 

FOR FURTHER INFORMATION CONTACT: 

Alison C. Simcox, Air Quality Planning 

Unit, Air Programs Branch, U.S. 

Environmental Protection Agency, 

Region 1, 5 Post Office Square, Suite 

100 (Mail code OEP05–2), Boston, MA 

02109—3912, tel. (617) 918–1684; 

simcox.alison@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Throughout this document whenever 

‘‘we,’’ ‘‘us,’’ or ‘‘our’’ is used, we mean 

EPA. 

Table of Contents 

I. Background and Purpose 

A. What Maine SIP submission does this 

rulemaking address? 

B. What is the scope of this rulemaking? 

II. What guidance is EPA using to evaluate 

this SIP submission? 

III. EPA’s Review 

A. Section 110(a)(2)(A)—Emission Limits 

and Other Control Measures 

B. Section 110(a)(2)(B)—Ambient Air 

Quality Monitoring/Data System 

C. Section 110(a)(2)(C)—Program for 

Enforcement of Control Measures and for 

Construction or Modification of 

Stationary Sources 

D. Section 110(a)(2)(D)—Interstate 

Transport 

E. Section 110(a)(2)(E)—Adequate 

Resources 

F. Section 110(a)(2)(F)—Stationary Source 

Monitoring System 

G. Section 110(a)(2)(G)—Emergency 

Powers 

H. Section 110(a)(2)(H)—Future SIP 

Revisions 

I. Section 110(a)(2)(I)—Nonattainment Area 

Plan or Plan Revisions Under Part D 

J. Section 110(a)(2)(J)—Consultation With 

Government Officials; Public 

Notifications; Prevention of Significant 

Deterioration; Visibility Protection 

K. Section 110(a)(2)(K)—Air Quality 

Modeling/Data 

L. Section 110(a)(2)(L)—Permitting Fees 

M. Section 110(a)(2)(M)—Consultation/ 

Participation by Affected Local Entities 

IV. Proposed Action 

V. Statutory and Executive Order Reviews 

I. Background and Purpose 

A. What Maine SIP submission does this 

rulemaking address? 

This rulemaking addresses a July 6, 

2016 submission from the Maine 

Department of Environmental Protection 

(Maine DEP) regarding the infrastructure 

SIP requirements of the CAA for the 

2012 fine particle (PM2.51) National 

Ambient Air Quality Standard 

(NAAQS). The primary, health-based 

annual standard is set at 12.0 

micrograms per cubic meter (mg/m3) and 

the 24-hour standard is set at 35 mg/m3. 

See 78 FR 3086. Under sections 

110(a)(1) and (2) of the CAA, states are 

required to provide infrastructure SIP 

submissions to ensure that state SIPs 

provide for implementation, 

maintenance, and enforcement of the 

NAAQS, including the 2012 PM2.5

NAAQS. On March 1, 2018, Maine DEP 

submitted a letter providing clarifying 

information for several of its 

infrastructure SIP submittals. In a July 

17, 2018 email, Maine DEP asked EPA 

to apply this letter to the infrastructure 

SIP submittal for the 2012 PM2.5

NAAQS, as well. The information in the 

letter and email (both included in the 

docket for this rulemaking) is mainly 

applicable to Elements E, F, G, and K. 


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