Sure, increase prices, and demand will fall, but it's not perfectly linear, and even a one cent increase boosts revenues considerably.
Here are some types of letters that won't fall under that:
* Birthday/Christmas cards. The postage is a small fraction of the card. * Legal-y letters, (e.g. when you make an offical complaint ), since the price of the stamp is again a tiny fraction of what you're complaining about. * Big padded envelops of A4 print outs of contracts or something (again, postage is insignificant)
Most utilities are switching to electronic billing, and/or charging for paper billing, so they are already getting rid of postage.
What other post is that price sensitive?
All you're arguing is that there are some pennies of increase which could increase revenue. Fine. That's not saving the post office.
Maybe not me and not by one cent but eventually, if they keep raising the prices, I would look at the price and think, "hmm this is getting kinda pricey. I wonder what UPS would charge to deliver this..."
USPS could double their first-class rates, and they'd still be undercutting the competition.