One impact of the Royal Mail entering private ownership has been the use of cost

cutting methods in order to meet its objective to maximise profits. Since Royal
Mail is an oligopoly, its primary aim is to maximise its profits. As a result, when it
was privatised, it opened up to market discipline and therefore needed to be
price competitive in order to maintain market share ,meet this objective and
satisfy shareholders. This has led to several methods to reduce the cost and
increase profits. An example of this can be seen in 2014 when total staff were
reduced by 5500 alongside a potential further 2000 to 3000 in an attempt to
save 80 million per year. Saving such a cost in potentially unnecessary labour
will reduce the average total cost for the firm, shifting ATC curve down and
therefore increasing the size of supernormal profits.
However to evaluate, the use of cost cutting measures in order to profit
maximise may come at a cost for consumers. This could possibly occur if the
cutting of costs reduces the quality of the end product. For example if by laying
off such workers, the process of delivery is more time consuming, consumers will
have a worse off product despite being of lower cost. Depending on the extent of
this, customers may in fact decide to switch to an opposing brand and therefore
reducing profits in the long run.
Another impact has been the introduction of Predatory pricing by the Royal Mail.
Prior to Privatisation, the Royal Mail had no need to maximise profits, instead to
prevent market failure. Therefore the role of other firms in the market had little
impact on its decisions. However, its new position as a privatised firms means
the role of other firms has a drastic impact on its ability to meet its objective. As
a result, to combat the fierce competition on prices that the Royal mail faces, it
has followed the method of Predatory pricing. This can be seen in the article
where it states used its dominant market position to unfairly price out
competitors. Such a method utilises the Royal Mails economies of scale and
drives other firms out of the market. This enables Royal Mail to sales maximise in
the short run and increase prices in the long to meet its objective to maximise
profits.
However to evaluate, predatory pricing is in fact illegal under anti- trust laws.
This can be seen by the fact the article states the Royal Mail are under
investigation by regulator Ofcom for any potential anti- competitive practices
Royal Mail has done. Therefore, if this is true, the potential benefits of predatory
pricing will be eradicated. This is because violation of these laws will likely result
in a significant fine which will either eradicate the additional benefits or even be
greater than the benefits Royal Mail may have received from predatory pricing.
A Further impact is an increase in the price paid by Consumers. The article
states, to compensate lower volume demands by consumers prices were rising.
For example first class stamps rose from 62 to 63p while second class rose from
53p to 54p. Such rises in prices can be seen as a cost to consumers. Not only is
there a reduction in the consumer surplus of Customers, the royal mails large
market share and economies of scale mean few firms can rival this price. As a
result, costs for customers increase without them having the ability to switch to a
cheaper alternative.

To evaluate, in the long term competition may in fact increase and therefore
increase the need for Royal Mail to remain price competitive. If firms such as
Yodel or TNT become more competitive either through price or non- price
methods like efficiency of delivery, Royal Mail will need to lower their price in
order to maintain sales and therefore maximise their profits. As a result in the
long run, prices may in fact fall, lowering the burden on Consumers and reducing
their Consumer surplus. The increased competition will mean consumers will
have a greater ability to switch between firms.
A Final Impact can be seen in an increase in Royal Mail Share price. Prior to the
Privatisation and after the partial privatisation, there was greater uncertainty
regarding the firm, since there was the overhang of a known seller looking to
exit its stake. With the eventual sales of these shares, the uncertainty has
disappeared improving the liquidity in trading of the shares and boosting the
share price. To add to this, the greater profits stated prior ( underlying operating
profit increasing 6%), will have improved investor confidence further and boosted
the already undervalued government selling price of 455p per share. The benefit
of this can be seen by the fact shares said to have increased 5% in the year 2015
while the ftse 100 itself has fallen 3%. Such a rise will be beneficial to investors
who ae looking a profitable transaction, improving their ability to diversify their
investments
However to evaluate, similarly to the last, the role of Ofcom will have an effect.
Since Ofcom has placed the royal mail under investigation and is completing a
review in 2016, this will create negative publicity for the Corporation. The extent
of this negative press will be exacerbated to a severe extent if the company is
found guilty. This would drastically reduce demand for shares in the Royal and
will cause stock prices to plummet.