The proposed Measures of Competition are economically meaningless [CORRECTED]

[Michael Flynn <MFlynn@xxxxxxxxxxxxxx>]

The proposed definitions, measures and targets are largely inappropriate and 
unhelpful for assessing competition. Moreover, ICANN now appears to be 
deemphasizing competition itself as a criterion when reviewing the performance 
of the new gTLDs.

     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 for introducing new gTLDs.  The title of the final draft ("Advice 
requested by ICANN Board regarding definitions, measures, and targets for 
COMPETITION, consumer trust and consumer choice" has now become ""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 (consumer trust and 
consumer choice) that ICANN seeks  to advance and evaluate. And it was ICANN's 
inability to provide a sufficient competitive justification for its gTLD 
expansion that has drawn the fire of many stakeholders, including the U.S. 
Departments of Commerce and Justice. The existence of genuine 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 economically 
meaningless. So also are the definition supplied for it ("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 proposed at p. 11.
     "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 seen as potential substitutes.
"Competition" occurs only between and among goods (including services) that are 
substitutes; producers of COMPLEMENTARY goods do not "compete" with each other.
     This is not just relevant to any discussion of "definitions, measures, and 
targets" for "competition"; it's critical. Unless restricted to just those 
alternatives that have been shown to be economic substitutes, such measurements 
would be meaningless.
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 or 
answer for the threshold question:  Do gTLDs actually 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?
To anyone familiar with the actual demand by registrants of second-level 
domains, the question answers itself:  Most registrants overwhelmingly prefer 
to register their second-level domains under the .com gTLD. To the extent they 
undertake registrations under any of the other gTLDs, this is IN ADDITION TO 
their .com domains, usually for defensive reasons. In other words, these 
registrations under the other non-.com gTLDs are COMPLEMENTS rather than 
SUBSTITUTES.
Despite prodding by U.S. government agencies and others, ICANN has never been 
willing to undertaken a proper delineation of the relevant product markets at 
issue in connection with any of its three campaigns (in 2000, 2003-2004 and the 
present) to increase the number of gTLDs. Its currently proposed measures of 
"competition" reflect that failure. They are economically meaningless, because 
they would not be taken within the confines of a properly-defined relevant 
product market. As a result, they cannot provide meaningful measures of the 
competitive significance of the new gTLDs, and likely will wrongly suggest that 
some new gTLDs have enhanced competition when in reality they have done nothing 
of the sort.


Michael A. Flynn
Director

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AFE Consulting
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E-mail:    mflynn@xxxxxxxxxxxxxx<mailto:mflynn@xxxxxxxxxxxxxx>
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Michael A. Flynn
Director

[AFEConsultingLogo021411-1000 Small.JPG]

AFE Consulting
1999 Harrison Street, Suite 2700
Oakland, California   94612
Phone:   (510) 985-6712
Mobile:  (510) 390-3096
E-mail:    mflynn@xxxxxxxxxxxxxx
www.AFEconsult.com

____________________________________________
NOTE:   This e-mail may contain privileged and confidential information and is 
intended for the use of the specific individual(s) and/or entity to which it is 
addressed.  If you are not the intended recipient of this e-mail you are hereby 
notified that any unauthorized use, dissemination, or copying of this e-mail or 
the information contained in it or attached to it is strictly prohibited.  If 
you have received this e-mail in error, please delete it and immediately notify 
the person named above by reply e-mail. Thank you.

TAX ADVICE DISCLOSURE:   To ensure compliance with requirements imposed by the 
IRS, AFE Consulting hereby informs you that if any advice concerning one or 
more tax issues is contained in this communication (including any attachments), 
such advice is not intended or written to be used, and cannot be used, for the 
purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) 
promoting, marketing or recommending to another party any transaction or matter 
addressed herein.