Revelation and use of information
Future demand for domain names can not be predicted with any certainty. However, even with such
uncertainty, existing and prospective registry operators have superior information about themselves in
terms of potential cost functions, price structures, potential returns on investment and innovative ability.
Given this information firms also have the capacity to judge the risks they are willing to assume and be
able to better estimate the economic value they can create and the profit they can expect.
The market should, therefore, be in a better position than ICANN to judge the demand for new TLDs.
In the situation where ICANN needs to make an allocative choice on a gTLD, with prescribed string, such
, an auction would enable firms to reveal, via their bids, the expected value of this resource. Based
on revelation and use of information, Economic theory would suggest that the most efficient operator
would outbid the less efficient operators.
In a situation where ICANN did not specify strings, thereby allowing bidders to propose strings, or
bid on strings proposed by others, auctions could also reveal the names most likely to succeed in the
market. In the case of two or more organisations proposing the same string, such as occurred in the 2004
sponsored domain name procedure, an auction would reveal the firm that believes it could create the most
economic value if awarded that resource. If auctions were used only as a tie breaker, in the case of the
same string being proposed, this could provide an incentive for prospective operators to research, consider
and offer alternative names. It is worth noting that during the 2004 round more than half the applicants for
sTLDs did not offer alternative strings. Neither of the two applicants for
Reliance on expertise
In an auction prospective registry operators determine the price of market entry through their bids. In
this scenario ICANN would not need to rely on technical or financial experts to select winners. This may,
of course, not obviate the need for expertise to be available to ICANN, such as in the case of pre
qualification, but it could potentially reduce the cost of the allocation process and reduce the `moral
A further benefit of auctions can be foreseen in relation to expertise. The current round of sTLDs
revealed a range of players with proposals for the creation of new services based on securing a TLD.
Among the proposed sTLDs, examples include proposals for `spam free e mail', relating telephone
numbers to domain names, relating second and third level domains to postal standards, as well as creating
gTLDs dedicated to navigational tools or content aimed at mobile communication devices.
It is not clear that sufficient expertise exists, outside the group proposing a new service, to choose
which entity should be awarded a TLD. To put this into perspective how would choice have been exercised,
prior to their widespread success, in the case of services such as e mail, the World Wide Web, streaming
media, instant messaging, Web logs (blogs), and so forth, if they had first been proposed in association
with the introduction of a TLD. ICANN should not be expected to be the arbiter of the merit of new
services, particularly where it is not a technical imperative to have a new gTLD but may be a marketing
A major advantage of an auction is that the mechanism is transparent to all market players, the
Internet community and the public. Bids are observable and verifiable meaning that the scope for
corruption is minimised since it would not affect the ranking of bids.