DSTI/ICCP/TISP(2004)2/FINAL 

Disadvantages 

Winner's curse 

The danger that winners will pay too much in an auction is known as the `winner's curse'. A widely 

held belief is that during the, so called, `Internet bubble' some firms paid too much for licences to use 

spectrum enabling them to offer UMTS (3G) services. If that is true then the bursting of the bubble should 

have provided adequate caution for any repetition of the experience, with auctions for new gTLDs, to be 

avoided.  Any auctions held by ICANN would not take place in an `Internet bubble'.   

A further difference between auctions for UMTS licences and domain names is that `3G' services lay 

in the future. By way of contrast, the gTLD market is well known and the experience firms have had with 

new gTLDs, such as 

.biz

 and 

.name

, is available to inform the market. If ICANN chose, for example, to 

auction the right to operate the 

.net

 registry the size of the current market is readily available. In December 

2003 there were just over 4.5 million registrations for which the registry received up to USD 6 per 

registration. In other words the revenue received by the registry may approach something in the order of 

USD 27 million. In an auction prospective registries would weigh the price they were willing to bid against 

that revenue stream along with there assessment of any potential change in demand and their own cost 

structure. They would also factor in the value of being able to market additional services to 4.5 million 

registrants. Given these circumstances it is likely that an auction would most value the 

.net

 resource at an 

appropriate level.  A similar outcome might be expected if price is given the greatest weight in a 

comparative selection procedure. 

Auctions may necessitate ICANN specifying the actual number of new gTLDs  

There are several ways ICANN could use auctions. One way is as an adjunct to other allocation 

procedures. For example, an auction could be used to choose between multiple entities proposing the same 

sTLD string or applying to be the registry for an existing gTLD. A second way in which auctions could be 

used, is in cases where the expected or actual demand exceeds the number of gTLDs ICANN is prepared to 

add to the root. There is an important distinction between the two. The first case of scarcity does not arise 

because ICANN has put a limit on the overall number of new gTLDs or sTLDs to be created. It is 

necessary because each string needs to be a unique identifier. This raises the question of why, in the second 

case, auctions might be considered a disadvantage relative to comparative selection. 

With a comparative selection procedure, or only using auctions as `tie breakers', ICANN does not 

need to indicate the specific number of new gTLDs that can or will be created. If ICANN judges the 

number of proposed gTLDs, or expected proposals, to be within its accepted bounds over a given time 

period for the introduction of new gTLDs, then the question of absolute scarcity does not arise. Some may 

argue that this gives ICANN greater flexibility in allocating future new gTLDs. By way of contrast, if 

ICANN does fix a number, and auctions are utilised, then bidders should be entitled to have an indication 

of how many new gTLDs ICANN proposes to create in future and over what time period.  

ICANN could, of course, not specify a number and reserve the right to create as few or as many as it 

deems fit. While bidders would factor such uncertainty into their bids it would not enhance transparency or 

the benefits of auctions that are derived from the use of information by the purchaser. 

High prices may discourage or limit participation 

It might be suggested that if there was an expectation of high prices, or that auctions in fact led to high 

prices, this would mean that prospective registries in developed countries would be better placed to win. It 

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