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Auctions, the report pointedly notes, are more equitable and transparent, make better use of information and expertise resident in the bidders, avoid corruption, and generate revenue. Does this sound familiar? The report suggests that the reassignment of .net offers an almost perfect economic case for using auctions.
"The market should, therefore, be in a better position than ICANN to judge the demand for new TLDs. In the situation where ICANN needs to make an allocative choice on a gTLD, with prescribed string, such as .net, an auction would enable firms to reveal, via their bids, the expected value of this resource. Based on revelation and use of information, Economic theory would suggest that the most efficient operator
would outbid the less efficient operators."
The report sees that there could be a continued role for "pre-qualification" of eligible bidders, but insists that any pre-qualification procedures be neutral, transparent and objective.
The OECD report also contains a useful and thorough analysis of current market conditions with respect to demand for new TLDs.
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OECD supports TLD auctions
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CircleID had also published a three part article based on a paper discussing competitive bidding of gTLDs:
An Economic Analysis of Domain Name Policy - Part III [circleid.com]
"Competitive Bidding for new gTLDs" is the focus of part three of a three-part series based on a study prepared by Karl M. Manheim, Professor of Law at Loyola Law School and Lawrence B. Solum, Professor of Law at University of San Diego. Special thanks and credit to Hastings Communications and Entertainment Law Journal, Vol. 25, p. 317, 2004."
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The authors of the report are working against consumer's interests, and I totally reject their position.
They should be advocating a TENDER process, whereby the prospective registry operators compete on the basis of who will deliver a FIXED set of services for the LOWEST prices (subject to minimum performance guarantees). This ensures that the "surplus" is captured by consumers, not the registry operator.
Under an auction scenario, where prospective registry operators bid against each other, with the highest bidder getting to run the registry willy-nilly, the incentives will be for the registries to jack up prices for consumers, in order to maximize the registry operator's profits. This is fundamentally against the interests of consumers (and registrars, by the way). A registry in this scheme would want to introduce "services" like Sitefinder, etc., to maximize its income. There will also be incentives for discriminatory pricing, to further maximize income -- for example, the owner of sex.com could be charged $3 million per year, whereas the owner of gskjdhglkjfhgflds.com could be charged $1 per year.
To see the effect of auction-based pricing, we need not look any further than the existing example of .tv, which is run by VeriSign. The island of Tuvalu essentially allows the highest bidder (in this case VeriSign, although there had been prior registry operators) to run the registry any way they choose. Of course, VeriSign wildcards this TLD, see www.glskgkjlhgkjhglgjhf.tv [glskgkjlhgkjhglgjhf.tv], and price discriminates (the above domain is $50/yr, whereas Games.tv is available for $100,000 per year.
The case of .net is NOT the perfect economic case for an auction, as there has already been allocations of .net domains. This would be like auctioning off the land in Manhattan, and allowing the "winners" to subsequently rent the land to anyone who already has a building on that land, and seizing the building if they didn't cough up the cash. We don't need it to be turned into another .tv, where suddenly Games.net or Music.net costs $100,000/yr. It would be a disaster for consumers.
If ICANN's Board made the mistake of going down the auction route for existing TLDs, they might as well pack their bags and head to Tuvalu, as the uproar would be even worse than that experienced over Sitefinder, with massive consensus against auctions. Breaking it down by constituency:
a) Registrars would oppose it (discriminatory pricing would eliminate registrar profits, making registrars redundant, esp. as the registry adds "services");
b) Commercial and Business Constituency would oppose it, as it would mean higher registration costs (e.g. att.net might suddenly cost $1 million/yr to renew);
c) ISPs are for lower prices, so they'd oppose it;
d) Non-commercial are for lower prices, so would also oppose it;
e) Intellectual Property folks would oppose it vehemently, as they wouldn't want IBM.net and Pepsi.net to suddenly cost more than gksjhgkjshgskjhsg.net to renew; and
f) Registries would love it, since they'd be making massive profits out of the scheme (although, they'd be splitting it with ICANN, via the tender price paid).
Thus, in conclusion, TENDERS are the optimal scheme, whoever can run the FIXED set of services at the least price for consumers (with set performance standards). AUCTIONS would eliminate the consumer surplus, and shift it instead to the Registry operator (and to the ICANN entity itself, who would squander the dough on travel junkets).
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OECD supports TLD auctions