The proposed Measures of Competition are economically meaningless

[Michael Flynn <MFlynn@xxxxxxxxxxxxxx>]

     The proposed definitions, measures and targets are completely 
inappropriate for assessing competition.

     Between the final draft (dated 22 February 2012) of the Advice Letter and 
ICANN's February 23rd posting, there was an interesting switch in emphasis that 
suggests ICANN now is trying to minimize the role of competition as a 
justification.  The title of the final draft("Advice requested by ICANN Board 
regarding definitions, measures, and targets for competition, consumer trust 
and consumer choice" became ""Draft Advice Letter on Consumer Trust, Consumer 
Choice, and Competition"[emphases added]
     This potentially is significant, because it is competition that is the 
necessary condition-the guarantor-of the other values that ICANN claims to be 
promoting. It was ICANN's inability to provide a sufficient competitive 
justification for its expansion plans that has drawn the fire of many, 
including the U.S. Departments of Commerce and Justice. The existence of 
competition-properly defined and understood-is a necessary condition for the 
realization of consumer trust, consumer choice and innovation. It should be the 
primary concern.
     But vague invocations of "competition", without more, are meaningless, 
just as are its purported definition ("Competition is defined as the quantity, 
diversity, and the potential for market rivalry of TLDs, TLD registry 
operators, and registrars") and the "Measures of Competition" that have been 
advanced at p. 11 by ICANN.
     "Competition" can be assessed only within the context of a properly 
defined "relevant product market", as that term is understood by economists, 
competition authorities and the courts to comprise the products (and their 
producers) that are deemed by consumers to be acceptable substitutes, and to 
exclude those products that are not so perceived.
"Competition" occurs only between and among goods (including services) that are 
substitutes; producers of complementary goods do not compete with each other in 
any meaningful sense.
     This is not just relevant to any discussion of "definitions, measures, and 
targets" for "competition"; it's critical.
The fundamental flaw in ICANN's entire rationale for its plans to increase in 
number of gTLDs is that it has never offered any satisfactory analysis of the 
threshold question:  Do gTLDs even compete with each other? Put differently, 
does ICANN-or anyone else-seriously contend that registrants of second-level 
domains generally are content to register their domains under one and only one 
of the available gTLDs, and that they are largely indifferent as to which they 
align with?
To anyone familiar with the actual demand by registrants of second-level 
domains, the question answers itself:  These registrants overwhelmingly prefer 
the .com gTLD. To the extent they undertake registrations under any of the 
other gTLDs, it is in addition to their .com domains. In other words, these 
registrations under the other non-.com gTLDs are complements rather than 
substitutes that are generally undertaken for defensive purposes.
Despite the prodding of U.S. government agencies and others, ICANN has never 
undertaken a proper delineation of the relevant product markets at issue in 
connection with its three campaigns (in 2000, 2003-2004 and the present). Its 
currently proposed measures of "competition" reflect that failure. They are 
meaningless, because they are not based on a clear delineation of the economic 
markets relevant to gTLDs.

Michael A. Flynn
Director

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