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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