DSTI/ICCP/TISP(2004)2/FINAL 
selection procedure can be a monetary one. This may not necessarily be the price entrants are prepared to 
pay to the body awarding the resource. In the case of ICANN's first round of new gTLDs those evaluating 
proposals highlighted the financial projections of prospective registries in terms of their commitment to 
provide competition with existing registries.  The main difference between the two allocation procedures is 
that in an auction the mechanism for competitive bidding is transparent and objective. In a comparative 
selection procedure the assessor is guided by information provided by the prospective registry and the 
transparency and objectivity on the criteria selected. The price a prospective registry is prepared to charge 
registrars is, for example, verifiable and can be enforced. Other criteria in a comparative selection process 
may be harder to verify and more subjective.  
If there were no asymmetries of information between ICANN and registries, an auction would not be 
needed at all. ICANN would be able to identify the most capable operators and assign them new gTLDs. In 
such circumstances ICANN would also have the option of charging registries exactly what they were 
willing to pay so that all rent could be used to fund ICANN or returned to the Internet community. 
However, this asymmetric information is unlikely to occur, hence an allocation process has to induce 
prospective registries to reveal their own private information. 
As asymmetric information is relevant in practice, prospective registries must be given the right 
incentives to disclose the information that they possess. If there is no competitive price bidding, there is no 
particular reason prospective registries will be forthcoming in the information they reveal. That is why 
comparative selection procedures, in principle a very flexible way of allocating resources, may not reveal 
the best available information to allocative decision makers. Indeed, there may be an incentive for 
prospective registries to offer unrealistic promises, in terms of their business plans, as the evaluators of 
those plans will not have the best available information at hand with which to judge these promises as 
being unrealistic. 
It is not claimed that unforeseen contingencies could be eliminated by auctions. They would exist in 
any case. However, by making the bidder financially responsible for what they offer, it gives a more 
stringent incentive to stick to what the bidder thinks will be realistic. The bidder will obviously make their 
own discounted calculations about the occurrence of future events. Their bid represents a summary of their 
evaluation and does not require ICANN to enforce all promises (in the sense that all promises would need 
to be met to justify awarding one entity a resource over another based on a `beauty contest'). ICANN 
would, of course, still need to check that some conditions of receiving a resource are met under any 
allocation procedure. 
In the following sections the pros and cons of auctions and comparative selection procedures are 
examined. 
Auctions: Pros and cons 
Advantages 
Equity and transparency 
Auctions rely on relatively simple and transparent rules that apply to all participants. As such they are 
fair and transparent. Given that bids are observable and verifiable by a court or any third party, the final 
allocation is less likely to be legally contested relative to a comparative selection procedure.   
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