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Auerbach Weighs in for gTLD Lotteries
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This post makes the argument that the root is not a scarce resource. This argument is clearly incorrect; indeed, the errors underlying the argument are now well know.
Why is the root a scarce resource?
The root of the DNS involves two scarce resources. The first resource that is scarce is the root server system itself. In theory, the root file could be very large, but at some point there will be engineering limits on the size of the file—which cannot be infinite in size.
The second scarce resource is the root name space. Not all strings (names) are equally valuable. Once a string is appropriated (e.g. assigned to a gTLD operator or registry) that string is not available to others. In other words, each unique string of characters (such as “.com” or “.info”) is unique, and hence scarce in the economic sense. Any TLD string that is sought by 2 or more firms is "scarce;" therefore, some allocation method must be employed.
But isn’t the root infinitely expandable?
No. The root can be expanded so that it is very, very large, but no system of root servers could resolve an infinite number of names. The upper limit may be very, very large, but physics tells us that there is some upper limit in theory and practice. However, the physical limits on the root server system are not the economically significant source of scarcity. If every name were of equal economic value, the root could be sufficiently large so that no gTLD name would have significant economic value—except insofar as the operator of the gTLD registry built up good will in the name.
Why are names a scarce resource?
Names are a scarce economic resource, because each name is unique and some names are more valuable than others. Each name can only be entered once in the root file. There can only be one “.com,” “.org,” or “.edu.” Because only one firm can be assigned the right to operate the .com registry, .com is scarce in the economic sense. Although there is a vastly large number of conceivable strings (assuming strings can be very long, e.g. 25 characters), most of these strings are of very little value as gTLD names. No one would pay a large sum for the right to operate the .x3kdd2ks99sx registry. Some strings, however, do have economic value. Some strings have semantic content. For example, a gTLD name “.auto” or “.car” would be associated with automobiles. In an auction, some strings would attract high bids, others low bids, and still others no bids.
Other naming systems can illustrate this point. Think of license plates. While, conceivably, there is an infinite number of available license numbers, some ("vanity plates") have special semantic value. Motorists are willing to pay substantial premiums for certain strings (e.g., 56TBIRD). Those strings are "scarce." Of course, not all naming systems involve scarce resources. Drivers' license numbers aren't scarce because no single number has premium value.
Doesn’t an auction scheme require artificial scarcity?
The price at which domain names would be auctioned depends in part on how many gTLD slots would be auctioned. One approach would be a “big bang” auction—which would put the entire root space up for auction. Another approach would be to auction a fixed number of names on a periodic basis. A big-bang auction would result in lower prices. A fixed-number auction would result in higher prices. But some strings would be valuable, even in a big-bang auction.
A Thought Experiment
If you still think that domain names are not a scarce resource, perform the following thought experiment. Imagine a big-bang auction. Anyone can bid on any string with a minimum bid of one cent. The auction will be open for four weeks, allowing bidders to switch to a lower priced string if the price of their first choice string is too high. Would anyone be willing to pay more than one cent for any string? If the answer to this question is “no,” then gTLD names are not a scarce resource. If the answer is yes, then gTLD names are scarce in the economic sense. In all likelihood, even in a big-bang auction, some new gTLD strings would command substantial prices, in the thousands, tens of thousands, or hundreds of thousands of dollars. Of course, the legacy strings (.com, etc.) might command bids in the millions of dollars. If this is true, then gTLD names are scarce in the economic sense. If you still disagree, you are defining “scarcity” in a nonstandard way.Lawrence Solum
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Re:This is a non-problem
by lsolum
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How is your comment modified if the things being auctioned off are not "names" but rather "slots" to which they can bind any not previously allocated name?
The priority of how winners of "slots" get to pick the character strings to bind to their slots could be established by a post-auction/post-lottery process of some kind (random, or by some kind of priority attribute attached to each individual slot before the auction/lottery.)
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