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    Auerbach Weighs in for gTLD Lotteries | Log in/Create an Account | Top | 49 comments | Search Discussion
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    Apologies to Fnord & More on Pyramids
    by lsolum on Thursday April 10 2003, @05:10PM (#11489)
    User #3416 Info | http://lsolum.blogspot.com/
    Fnord's points are all well taken. Of course, many SLDs are used for non-web purposes. Of course, there are defensive registrations. By "inventory" I meant to refer to speculative inventories--and I am happy to adopt Fnord's more precise usage of this term. Further, I apologize for confusing Fnord with the Anonymous poster whose messages I had been responding to up until this point on this issue.

    On the question whether there was a pyramid scheme, it still seems clear that at best there is a loose analogy between the economics of domain name sales and the economics of a pyramid scheme. Here is what Fnord wrote:
      At every step down this pyramid the price goes up, not normally because there is any value added but simply because the seller has control of what has at least the perception of being a scarce resource. In addition at most levels in this chain there are claims made by the sellers about the supposed scarcity, and supposed value, that are at odds with reality (compare this, for example, with pyramid schemes selling snake oil purported to be the cure for cancer or other illnesses). False claims, false scarcity, upping the price at each level without actually adding value, this all smells, or rather stinks, of a pyramid scheme for all practical purposes.

    I want to concede that there are undoubtedly cases of misrepresentation, but this is economically a quite different phenomenon from a pyramid scheme--where each new recruit is told that they must bring in some number N of new recruits in order to recieve the promised payoffs. No one on this thread has given any argument that this feature (exponential growth at each layer of the pyramid) has ever been characteristic of the market in domain names. Perhaps, somewhere, someone was running a true pyramid scheme involving domain names, but none of the phenomena identified by Fnord or the anonymous poster correspond to the characteristics that are criterial for a true pyramid scheme.

    The phenomena that Fnord identifies are charcteristic of a quite different economic phenomenon--a speculative bubble. Speculative bubbles involve inflated claims of value, a lack of correspondence between market price and underlying economic realities, and resale of the same commodity good for higher and higer prices. If Fnord's point is that domain name sales have involved a speculative bubble and that speculative bubbles like pyramid schemes are undesirable, I absolutely agree.Lawrence Solum
    [ Reply to This | Parent ]
    Apologies to Fnord & More on Pyramids by lsolum
    Re:Apologies to Fnord & More on Pyramids
    by Anonymous on Thursday April 10 2003, @06:30PM (#11490)
    "....where each new recruit is told that they must bring in some number N of new recruits in order to recieve the promised payoffs."

    what do you call creating an accredited retail channel where each is told they are to sell the very same unique product? The registrar is an accredited recruit...then if they do not bring in N of new recruits (consumers in the case of register.com or re-sellers in the case of tucows), then they do not receive the payoffs from the accreditation. The fact that they can't bring in N has led to the accredited recruit to devise "new services" to attract N recruits (consistent with a pyramid scheme) in order to survive or meet desired payoffs. This is a stategy that is far different than offering the accredited recruit the ability to sell like-kind goods and services to attract N new recruits in a competitive environment and has in fact been an avenue that has been purposely avoided (consistent with a pyramid scheme in order to perpetuate it). The fact this is not entirely visible in the current economic sense is simply because one accredited recruit had 100% of all the recruits and the past few years have been spent divvying this up amongst the new accredited recruits. The group of new recruits within the scheme called consumers (that have never purchased a domain) must either participate with the scheme or not participate at all. The fact that N is choosing not to participate (at comparative growth rate vs 1999) has the accredited recruits going back to its current base of recruits to increase per capita. Since this was a successful strategy for obtaining N for many of the accredited recruits, the original accredited recruit is invested into a way to capture these N recruits for themselves.
    [ Reply to This | Parent ]
    Re:Apologies to Fnord & More on Pyramids
    by fnord (reversethis-{moc.oohay} {ta} {k2yorg}) on Friday April 11 2003, @10:41AM (#11494)
    User #2810 Info
    No need to apologize, and I think we are generally in agreement. I never stated that ICANN is running a pyramid scheme, only that it many ways it looks, feels, and smells like one, which I think is of itself undesirable. I do maintain that the speculative bubble has largely burst. I suspect that the registering of domain names in the hopes of resale has largely disappeared as there is now a relatively long history of lack of success in this endeavor amongst most who engaged in it. I have also written previously here and elsewhere regarding some of the supposed success stories (such as beauty.cc allegedly selling for $1million) which turned out to be scams. Indeed many of the most ballyhoed success stories turned out to be at least dishonest and at worst scams.

    What we now have is speculators going to WLS where it makes more sense to pay more than a registration fee for a pre-owned 1a2b3zzz.com if it has considerable traffic than to pay $7million for business.com (another scam) if it doesn't generate traffic. Thus does ICANN, some registries, and some registrars (and perhaps some resellers) keep its ship afloat. This new speculator bubble will also probably pop in good time. -g

    [ Reply to This | Parent ]

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