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comments on ICANN-Registry Contracts

  • To: biz-tld-agreement@xxxxxxxxx, info-tld-agreement@xxxxxxxxx, org-tld-agreement@xxxxxxxxx
  • Subject: comments on ICANN-Registry Contracts
  • From: "webmaster" <webmaster@xxxxxxxxxxxxxx>
  • Date: Sat, 26 Aug 2006 13:05:57 -0500

I offer the following comments on any ICANN-registry contract changes that allow uncapped, differential registration prices for different domains. These comments are in two batches. The first batch is an effort to be analytic and balanced -- it is rather dry. The second batch makes no effort to be balanced, but rather is satirical and colorful. My hope is that the combination of dryness and colorfulness provides more useful and interesting input than either alone. Sincerely, Bob Connor ------------------------------------------------------ 1) Dry Comments: Wealth Distribution and Namespace Health 1a) Wealth Distribution Effects of Propose Changes With respect to contract changes that would allow uncapped, differential pricing for different domains, it is useful to distinguish and consider: (1) the wealth distribution effects of these changes vs. (2) the effects of these changes on the health of the TLD namespace. With respect to wealth distribution effects, these changes would almost certainly redistribute wealth. The “wealth” in question is the value of some domains above their currently fixed, uniform registration cost. This issue arises in both the distribution of expiring domains and in ongoing registration for registered domains. This case concerns the latter. The economic term for the value of something above that price that a consumer pays for it is called “consumer surplus.” The issue here is what portion of the potential consumer surplus is gained by the consumer and what portion is kept/extracted by the seller. The issue is made more complex due to the multiple parties in the vertical distribution chain for domains, including ICANN, registry, registrars, and registrants. There is also the possibility of intermediary entities between registry and registrars (e.g. groups of registrars) and between the registrars and registrants. It is also complicated when registrars act as registrants themselves in addition to their role registering domains for others. There is debate about how much monopoly power a registry for a given TLD really has. An argument that the registry has complete monopoly power is that all registrations for a given TLD must be done through the registry. The counter argument is that consumers have options among different TLDs and thus a registry does not have true monopoly power. Similar issues arise in the definition of the market for goods and services in anti-trust cases. These discussions can get very complex very quickly and provide full-time employment for many lawyers and economists. However, it is probably safe to say that a registry has a substantive amount of market power, even if it does not have a perfect monopoly. By analogy, one may have the option of getting electricity from a wind turbine in one’s backyard instead of one’s local electric utility, so the local electric utility does not have a complete monopoly. However, electric utilities are generally price-regulated in the public interest based on their near-monopoly status. In a market with a monopolist seller, the most effective method of extracting consumer surplus from customers is a combination of product/market segmentation (charging different people different amounts for different things) and auctions (getting people to pay as close to their maximum value as possible). Thus, if a registry is a profit-maximizing monopolist, it would seek differential pricing and auction capability. It appears that these contacts allow considerable movement in this direction. This would enhance the ability of a registry to extract consumer surplus from those lower down on the distribution chain. It is pretty clear that this would result in a transfer of wealth from registrants to the registry. The effect on registrars (being in the middle) is less clear. Some registrars might wind up being better off by aligning or contracting in some manner with the registry and getting a portion of the extracted monopoly profits. Other registrars may wind up being worse off -- squeezed by higher “supply prices” from the registry that they are not able to recover by passing along the entire increase in the form of higher “sale prices” to registrants. The role of registrars in the vertical supply chain for domains might even erode. To summarize the wealth redistribution effects, it is highly likely that wealth would be redistributed from registrants to the registrar. The effects on those in the middle, such as registrars, could go either way depending on contracts, alliances, politics, and/or value added in the domain distribution process. 1b) Effects of Proposed Changes on Health of TLD Namespace Now let us consider the possible effects of uncapped, differential pricing on the overall health of a TLD namespace. Probably everyone would agree that changes that promote development of content and use of sites in a namespace are good for its health. Changes that erode this development are bad. One possible good effect of uncapped, differential pricing might be a reduction in registrations for speculative purposes without development. One could argue that increasing prices overall and implementing higher prices for more valuable domains would decrease the economic incentives for domain speculation. As the costs of domain registration increase, only registrants who develop them would be able to make enough from them to pay the registration fee. This could lead to an increase in higher-quality, substantive sites and thus improve the health of the TLD namespace. On the other hand, one possible bad effect of uncapped, differential pricing might be a reduction in registrants’ incentives to develop a site because the value that they create could then be siphoned off by higher registration fees. Consider an analogy to patents and trademarks. Companies invest considerable amounts of money in R&D to get a patent because the cost of a patent does not increase with the value of the patent. The patent office does not charge more if product sales based on a patent take off. The company invests money in research, gets a patent, and then gains the surplus between the value of the patent and their original investment as the product is sold. If the patent office used differential pricing to increase patent fees based on the value of the patent (e.g. product sales), then companies would have much weaker incentives to conduct research or develop new products. It would throw cold water on economic development. Similarly, companies invest in advertising to create value for their trademarked terms. However, if the USPTO charged more for renewal of more valuable trademarks, then companys’ incentives to advertise and build up their trademarks would be greatly weakened. Why bother advertising if the gains went to the trademark office? Thus, uncapped, differential pricing could weaken registrants’ incentives to build useful, valuable online sites. This could decrease the health of the TLD namespace. The net effect of uncapped, differential pricing on the health of the TLD namespace would depend on which of these positive or negative effects dominated. Thank you for your consideration of these dry comments. Now here are the colorful ones. 2) Colorful Comments: Satire (Note: This is satire -- made up – bogus. At least in this context.) USPTO Seeks “Market-Based Pricing” for Patents and Trademarks After decades of uniform pricing for patents and trademarks, the Patent and Trademark Office has proposed new contractual language that will open the door for market-based “differential” pricing for its services. “We work hard. We do our best within our budget,” said Cy Phonoff, the new Director of Market-Based Monopolist Pricing, “…but we never realized that we were leaving so much money ‘on the table’ until we read over the proposed ICANN contract for the .INFO, .BIZ, and .ORG TLDs. Patents and trademarks are worth a lot more to the companies that apply for them than we charge to review them. That is a lost revenue opportunity for us.” “Let’s face it,” said Mr. Phonoff, “Some patents are worthless and some patents are worth big bucks. Why should we charge the same to review both? Why can’t we get a cut of the action on the latest multi-million dollar blockbusters? We need the flexibility to set prices based on what the market will bear.” Responses to the proposed pricing differential were mixed. One white-haired scientist hunched over bunch of bubbling stuff whose ID badge was obscured responded – “What market? There is no market for patent and trademark approvals. They are it. What are we inventors supposed to do if they charge too much? Apply for a patent in Tuvalu? Maybe it is time for me to do something else with my life… maybe its not too late to take up accounting?” Mr. Phonoff responded to this criticism – “Scientists and corporations are always bragging about how revolutionary their ideas are and how much money they will make for shareholders. And now they want us to stay on the sidelines? I don’t think so. When was the last time you heard about a government agency sponsored suite at the SuperBowl? Why should the corporations have all the fun? You will see big changes when we get the flexibility for market-based differential pricing for patents and trademarks.”

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