Standard Rates

Standard rates (prices) for goods and services tend to be offered when it’s too costly or complicated to set prices based on actual cost, when customers hesitate to buy because of price uncertainty, when it’s desired for some customers to subsidize others, or some combination of these factors.

For example, the U.S. Postal Service charges $8.30 to send a “Small Flat Rate Box,” regardless of weight, by Priority Mail to any domestic address. The actual transportation and handling costs vary with the weight and distance, of course, but this standard rate simplifies things for postal customers, who don’t need a scale or zone charts, or to worry about insufficient postage, and for the USPS, which doesn’t have to collect postage due from recipients.

It also provides a cross-subsidy: there’s no discount for sending a package in the same city, nor a surcharge for delivery by air to Guam or by mule train to the bottom of the Grand Canyon. This reflects a political decision that the people in those places are Americans, too, who deserve access to mail services at affordable prices.