Economic theory and experience suggest that auctions are one of the best available mechanisms for
realising the true market value of a resource, as the price is decided by those with the best knowledge of
the market. In the context of the TLD market the benefits auctions can bring, in this respect, largely depend
on the objectives that are set by ICANN.
As a not for profit organisation, revenue maximisation may not, in fact, be an objective ICANN sets
for itself. The value of any new gTLD may, for example, be impacted by the number of other gTLDs that
ICANN chooses to make available. ICANN may decide that the increasing the number of new gTLDs can
provide greater competition, choice and innovation and give higher priority to meeting those objectives
than to revenue maximisation. This does not, however, negate the benefit an auction can yield in terms of
determining the value of a resource or in being a tool for efficient allocation.
As with comparative selection, any decision on revenue raised by allocation procedures is a matter for
ICANN. In the case of auctions of licences for using the radio spectrum, one of the advantages forwarded
is that it returns a greater share of surplus rent from a scarce resource to the public rather than to
shareholders. This is, however, in the context of the sale of licences by governments rather than an entity
such as ICANN. There are, of course, obvious differences between the two. It needs to be recognised that a
comparative selection procedure, such as in the case of
, would give surplus rent to the shareholders of
whichever firm was successful unless some form of price mechanism is used. One alternative under a
comparative selection procedure is to give the highest weighting to the maximum price prospective
registries are prepared to undertake to charge to registrars. This may lower the cost of registrations if the
reductions are passed on to end users by registrars. On the other hand, if registrants are not price sensitive
or place greater weight on other criteria this would simply shift rents from the shareholders of registries to
those of registrars. By way of contrast, an auction would place a greater share of this rent at the discretion
of ICANN. ICANN could, of course, use any such revenue to meet its own funding requirements. At the
same time, any surplus might be returned to the Internet community in ways that would benefit users and
provides one example of how this was managed in Australia.
The experience of domain name auctions in Australia
Domain Administration Ltd (auDA) is the policy authority and industry self regulatory body for the
auDA carries out the following functions: develop and implement domain name policy; license 2LD registry
operators; accredit and license registrars; implement consumer safeguards; facilitate .au Dispute Resolution Policy;
and represent .au at ICANN and other international fora. In December 2000, the Australian Government formally
endorsed auDA as the appropriate body to administer the
domain space. The Government holds reserve powers in
relation to domain names under the Telecommunications Act 1997. In October 2001, ICANN recognised auDA as the
suitable operator for
under a Sponsorship Agreement.
In December 2001 auDA released 3 006 domain names previously classified as `generic' and unavailable to Australian
businesses. Domain names like shopping.com.au and sport.com.au became available for the first time. If an applicant
was the only eligible applicant for a particular name, they could obtain that name for the reserve fee. If there were
several eligible applicants for a name, it was auctioned.
As a result 1 612 generic names were allocated, either to a single eligible applicant or at auction.
The highest price
paid for a generic name was USD 83 000, for flowers.com.au. The median auction price was USD 1 600. Most names
were allocated for the minimum reserve price of USD 60.
The process raised approximately USD
1.4 million in total, of which auDA has allocated approximately
USD 423 000 for tax and USD 272 000 for contingencies.
At its meeting in August 2002, the auDA Board gave in principle support to a proposal to use the remainder of the
auction revenue to establish the auDA Foundation . The purpose of the Foundation is to enhance the utility of the
Internet for the benefit of the Australian community, through sponsorship of education and community projects.