Here is an interesting article from the Practical Ecommerce website (click here).
This is a question that comes up a lot when I am talking to online retailers. I would add to the points in the article that regular priority mail can also be less expensive than the flat rate option so don't just assume flat rate is always the best option.
It should also be noted that being able to track packages is a concern for online retailers as the Post Office service does not provide as the same level of tracking capabilities as FedEx and UPS offer.
Many third party order fulfillment services will offers a greater discount off of UPS/ FedEx shipping rates so if you are working with a 3rd party, the tipping point at which the USPS is a more expensive option often happens at a lower threshold than what the analysis illustrates.