The Effect of Entry Regulation on Process Innovation in the Swiss Mail Industry

We develop an industry specific model of price competition with product differentiation to analyze the effect of entry regulation on process innovation in the Swiss mail industry. We consider the four most prominent scenarios: regulated monopoly, end-to-end competition, worksharing without bypass, and worksharing with bypass. Based on model calibration with data from the Swiss letter market, we find that the incentives to invest in process innovation decrease with deregulation. However, even accounting for this fact, the efficiency gains from partial liberalization, i.e. worksharing, ensure an increase in social welfare.