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Federal Register / Vol. 86, No. 227 / Tuesday, November 30, 2021 / Proposed Rules
lotter on DSK11XQN23PROD with PROPOSALS1

undermine the Postal Services ability to compete. See id.
The inability to further allocate institutional costs under the current methodology, however, does not mean that the Postal Service has an unfair competitive advantage with respect to Competitive products. See id. The available evidence suggests that the market is healthy and competitive. See id.; Section VI.B.2. There is no evidence that the Postal Service has engaged in anticompetitive pricing of Competitive products; to the contrary, the evidence suggests that the Postal Service is incentivized to maximize Competitive product profits, and its market conduct has been in line with what would be expected of a profit-maximizing firm.
See Section VI.A.2. Competitive product contribution to institutional costs has always exceeded the required amount, often by a significant margin.3 The Commission has elected to retain the appropriate share to serve as a margin of safety against any possibility of the Postal Service having an unfair competitive advantage. See Section VI.A.2. Under the proposed dynamic formula-based approach, the appropriate share requirement would increase due to growth in the profitability or market share of the Postal Services Competitive products.
See id.
With the foregoing clarifications having been made, the Commission explains how the formula operates and how it accounts for the prevailing competitive conditions in the market and other relevant circumstances that the Commission has historically considered qualitatively when evaluating the appropriate share requirement. See Section VI.B. Because the dynamic formula-based approach reasonably reflects the qualitative statutory criteria from 39 U.S.C. 3633b, it easily falls within the Commissions broad discretion to determine what the appropriate share should be. See Section VI.B.1. The Commission concludes that the appropriate share requirement, as derived from the formula, is sufficient to prevent the possibility of the Postal Service engaging in anticompetitive pricing of Competitive products. See Section VI.B.1.c.
III. Basis and Purpose of Proposed Rule The purpose of the Commissions dynamic formula-based approach is to provide an objective basis on which to quantify the statutory considerations of 3 See
id. citing FY 2020 ACD at 9195; FY 2019
ACD at 8689; FY 2018 ACD at 11217; Order No.
4402 at 5253 83 FR 6758, Feb. 14, 2018.

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section 3633b in order to determine the year-to-year change in Competitive products joint minimal capacity to generate profit that can be contributed to the coverage of institutional costs.
Order No. 6043 at 99.
The formula seeks to determine the Postal Services overall market power by measuring its absolute and relative market power.4 In order to assess the Postal Services absolute market power and its market position, the formula utilizes two distinct components. The first component is the Competitive Contribution Margin, which measures the Postal Services absolute market power. Id. at 99101. Specifically, the Competitive Contribution Margin is calculated by subtracting the total attributable costs of producing the Postal Services competitive products collectively from the total amount of revenue the Postal Service is able to realize from those competitive products collectively in a given fiscal year, and then dividing this result by the total competitive product revenue. Id. at 99
100. The formula assesses the year-overyear percent change in the Competitive Contribution Margin to determine how much, if any, the Postal Services absolute market power has changed. Id.
at 100.
The second component of the formula is the Competitive Growth Differential, which measures the Postal Services market position. Id. at 100101.
Specifically, the Competitive Growth Differential is calculated by subtracting the year-over-year percent change in the combined revenue for the Postal Services competitors from the yearover-year percent change in the Postal Services competitive product revenue.
Id. This relative growth is then weighted by the Postal Services market share. Id.
at 100.
Using the above-described components, the Commissions formula is represented by the following equation:
ASt1 = ASt 1 + %DCCMt1 +
CGDt1
If t = 0 = FY 2007, AS = 5.5%
Where, AS = Appropriate Share CCM = Competitive Contribution Margin CGD = Competitive Growth Differential t = Fiscal Year
Id. at 102.

In order to calculate an upcoming fiscal years appropriate share percentage ASt1, the formula multiplies the sum of the prior fiscal years Competitive Growth Differential and percentage change in the Competitive Contribution Margin 1 +
%DCCMt1 = CGDt1 by the current fiscal years appropriate share ASt. Id.
Both components of the formula are given equal weight. Id. The formula is recursive in order to incorporate all changes in the parcel delivery market since the PAEA was enacted and the appropriate share was initially set. Id. at 103. The formulas calculation thus begins in FY 2007 with a beginning appropriate share of 5.5 percent. Id. The upcoming fiscal years appropriate share will be updated by the Commission each year as part of the Commissions Annual Compliance Determination, which is performed pursuant to 39
U.S.C. 3653. Id.
Because another 5 years has passed since the Commissions review began in Docket No. RM20171, Order No. 6043
also initiates the Commissions third 5year review via Docket No. RM20222.
Because the issues and facts under review are related, the two dockets are consolidated to enable more efficient administration of proceedings before the Commission. See 39 U.S.C. 503; 39 CFR
3010.104.
IV. Proposed Rule In order to implement the Commissions formula, existing 3035.107c is reissued. Proposed 3035.107c1 establishes the formula that is to be used in calculating the appropriate share and defines each of the formulas terms. Proposed 3035.107c1 states that the appropriate share of institutional costs to be covered by competitive products set forth in that rule is a minimum contribution level. Proposed 3035.107c2 establishes the process by which the Commission shall update the appropriate share for each fiscal year. The Commission will annually use the formula to calculate the minimum appropriate share for the upcoming fiscal year and report the new appropriate share level for the upcoming fiscal year as part of its Annual Compliance Determination.
List of Subjects for 39 CFR Part 3035

4 Market
power is a firms ability to price a product or service higher than the marginal cost of producing it and, as a concept, embodies both absolute and relative aspects. Id. A firms absolute market power is its ability to raise prices with regard to its own consumers. Id. A firms relative market power, which can also be described as its market position, is its capacity to exercise market power relative to its competitors. Id.

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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:

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