DSTI/ICCP/TISP(2004)2/FINAL 

resource can be said to be scarce. A similar consideration arises in the case of existing resources. In 2005 

ICANN needs to exercise an allocative choice in regard to the registry which has responsibility for 

.net

. 

Allocation procedures 

When OECD countries allocate resources they have certain common objectives irrespective of the 

method chosen. These can include efficient allocation of a resource and efficient use of that resource, 

transparency in the award of a resource, non discrimination, and the creation of appropriate conditions for 

market competition. There may also be other wider economic and social objectives. Through statements 

and actions it is clear that ICANN shares the ideals inherent in these objectives. ICANN has responsible 

for Internet Protocol (IP) address space allocation, protocol identifier assignment, Top Level Domain name 

system management, and root server system management functions. As the body primarily responsibility 

for this technical co ordination it might be argued that ICANN's remit is a technical and economic one in 

respect to resource allocation. Some broader factors, such as the aim for geographical diversity, do play a 

part in forming the criteria for ICANN's decision making. 

An allocation process, in the case of for profit registries, will be efficient if it allocates resources to 

those firms who value them most. The value of the resource to such a firm is represented by the future 

returns that this firm expects to get if awarded a gTLD. These returns (profit) depend on several factors 

such as: 

The firm's own characteristics such as cost, financial situation, ability to innovate and so on. 

The characteristics of competitors as this will be an important determinant of market shares and 

prices. 

The characteristics of the market such as user demand, and expectations for future service 

development. 

The performance of financial markets as it will affect registries' financial situation and 

possibilities as they rely for their investments on such markets. 

The firm has certain knowledge only for a few of these factors. This implies that there is uncertainty 

in terms of the value of the resource for any potential registry. Nevertheless, based on their knowledge of 

their own cost structure, expected price structures and assessment of market demand, a prospective registry 

is in a better position to assess the value of a new gTLD than other parties including ICANN. It is a 

legitimate assumption to believe that the  best  firms will place the highest value on a resource, where best 

refers to firms with lower costs and a greater ability to innovate and remain competitive. 

In an auction the decision on the price paid, for the right to operate a new gTLD, is made by a 

prospective registry. It is also through these bids that firms determine who will exploit the resource being 

created or reallocated by ICANN in a transparent way. A comparative selection procedure generally leaves 

price decisions and allocation decisions to administrative discretion. The price placed on the resource is 

either decided on a cost recovery basis or a subjective assessment of its value. An allocation under a 

comparative selection procedure may involve a price mechanism, in the case of the DNS market structure, 

if the criterion of the maximum price a registry is prepared to charge registrars is considered. 

It is important to note that the difference between auctions and comparative selection procedures is 

not as marked as it may seem at first sight. Auctions may still require participants to satisfy a certain set of 

technical and service parameters (

i.e.

 pre qualification). Similarly, one of the criteria in a comparative 

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