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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