[pdp-pcceg-feb06] Fwd: Re: Report on the PDP-Feb06 from Sao Paulo

[Mawaki Chango <ki_chango@xxxxxxxxx>]

FYI, some may find the following analysis by Harold Feld useful.

Mawaki

--- Harold Feld <hfeld@xxxxxxxxxxxxxxx> wrote:

> Date:         Wed, 6 Dec 2006 09:46:45 -0500
> From:         Harold Feld <hfeld@xxxxxxxxxxxxxxx>
> Subject: Re: Report on the PDP-Feb06 from Sao Paulo
> To:           NCUC-DISCUSS@xxxxxxxxxxxxxxxx
> 
> At 06:06 PM 12/5/2006, Milton Mueller wrote:
> > >>> Mawaki Chango <ki_chango@xxxxxxxxx> 12/5/2006 3:20 PM >>>
> > >TERM OF REFERENCE 3
> > >Policy for price controls for registry services
> > >Policy Recommendation N (Option 2):
> > >
> > >The NCUC has argued that it is premature to formulate policy in
> the
> > >area of pricing without having had the benefit of an intensely
> > >focused study on this topic. They believe that a new PDP is
> required
> > >to address the specific issue of price controls. ("We believe
> that
> > >existing price caps should be left in place for the short term,
> and
> > >another, separate PDP inaugurated on methods and criteria for
> > >changing, raising or eliminating price caps in the future.")
> > >
> > >Thus, another option is to keep the status by encouraging ICANN
> to
> > >continue with existing pricing provisions and initiating a
> targeted
> > >PDP on this issue alone taking into account the upcoming
> economist's
> > >report (http://www.icann.org/minutes/resolutions-18oct06.htm).
> > >
> > >NCUC: N
> >
> >Yeah! Good stuff. Also, the "market dominance" analysis in the
> Option 1
> >is fallacious from an economic point of view. To an individual
> >registrant with an established domain, opportunistic pricing hurts
> them
> >whether or not the registry is dominant in the total  market.
> 
> Allow me to expand on this a bit, because it is important.
> 
> The theory of competitive markets holds that competition between 
> providers serves consumers (some would say better than 
> regulation).  When consumers can freely choose closely
> substitutable 
> products from a variety of vendors, the vendors must work hard to 
> attract customers.  Thus, in competitive markets where consumers
> can 
> freely switch, vendors will generally seek to hold prices to the 
> lowest profitable level (lest a competitor attract price sensitive 
> customers) or offer services that justify a provider premium (e.g.,
> 
> better customer service).
> 
> There is a difference between whether competitive alternatives are 
> available and whether consumers have the ability to take advantage
> of 
> the competitive alternatives.  In economic terms, it is possible
> that 
> the cost of switching from one alternative to another ("switching 
> cost") is so high that a consumer cannot switch to a theoretically 
> available alternative.  This is called "consumer lock-in."  Lock in
> 
> may also occur if a theoretical alternative is not, in fact
> available 
> to the specific consumer, if the theoretical alternative is not a 
> close substitute, or for other reasons.
> 
> Finally, where there are relatively few choices, and providers of
> the 
> choices all operate under the same general conditions and with 
> considerable knowledge of each other's practices, parallel behavior
> 
> with regard to pricing is likely to occur even in markets that are 
> considered "competitive" under most indicia (e.g., have four or
> more 
> equal size firms).
> 
> Apply this to the TLD market. There are now five truly generic TLDs
> 
> (.com, .org, .net, .biz, .info), a number of "sponsored" TLDs
> (e.g., 
> .travel) and a number of ccTLDs open to large numbers of
> registrants 
> (but not necessarily all registrants) (e.g., .us (must have U.S.
> nexus)).
> 
> .com and .net are run by the same registry, and are thus unlikely
> to 
> genuinely compete against one another.  Verisign has no incentive
> to 
> try to drive customers from one TLD to the other.  This leaves only
> 
> three competing registries that can be regarded as possibly close
> substitutes.
> 
> But a consumer switching from one TLD to another faces very 
> significant costs.  Leaving aside the costs of changing addresses
> and 
> informing everyone else to change the address, a name holder has 
> usually invested considerable goodwill in a name.  Even switching 
> from Example.TLD1 to Example.TLD2 is likely to create customer 
> confusion and dissipate good will by creating inconvenience for 
> customers/website visitors.
> 
> This gets worse if "Example" is not available in TLD2, since it 
> requires not merely a change in TLD, but a substantive change in
> the 
> name.   Finally, the holder of Example.TLD1 that abandons that name
> 
> due to concerns about pricing runs the risk that someone else will 
> register Example.TLD1 and exploit the goodwill created by the 
> original registrant or create confusion (either innocently or
> deliberately).
> 
> There is also the question of whether the registrant regards TLD1
> and 
> TLD2 as "substitutes" or "close substitutes."  The difference is 
> important.  I regard something as "close substitutes" if I am 
> indifferent or care only a little about which one I use.  By 
> contrast, if I will use a different product when I must but really 
> don't regard it as the same, it is merely a "substitute."  For 
> example, Diet Coke and Diet Pepsi are both diet colas.  Many people
> 
> are equally happy drinking Diet Coke or Diet Pepsi, and therefore 
> regard them as close substitutes.  I have a strong preference for 
> Diet Coke, and regard Diet Pepsi as merely a substitute to use when
> 
> no Diet Coke is available.  Further, while water is also a drink
> with 
> no calories, it is clearly different from a diet cola.  Again, some
> 
> people may regard water as a close substitute, while others merely 
> regard it a substitute and will pay a premium for diet cola if that
> 
> is what they genuinely want.
> 
> For all these reasons, a name holder may not regard an available 
> competitive alternative as actually available, or may endure
> onerous 
> terms the name holder would have rejected when initially selecting
> a 
> TLD in which to register.
> 
> Worse from a consumer perspective, the relatively small number of 
> providers makes it less likely that the consumer will have a real 
> choice.  Even if there is no market power in the usual sense, the 
> limited number of competitors ensures that all competitors will 
> quickly switch to the more profitable pricing strategy unless there
> 
> is an immediate, strong consumer rejection of the change in pricing
> 
> policy that drives so much business to the few competitors that it
> is 
> worth maintaining the old policy.  But lock in factors discussed 
> above make such a mass exodus/market correction unlikely.
> 
> In short, "market power" or the presence of possible competitive 
> alternatives is not the only measure of whether consumers have 
> sufficient real choices to rely on market forces in place of 
> regulation.  A better public interest analysis will look not merely
> 
> to the number of possible competitors or even only to market chare,
> 
> but to the nature of consumer lock-in and other factors that may 
> limit the ability of competitive market forces to protect consumer
> interests.
> 
> Harold 
> 



 
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