Allocation Methods for Single-Character
Domain Names: Issues
Alex
Tajirian
November
10, 2007
Abstract
Managing the design of an allocation mechanism for single-letter
and single-digit domain names will entail coordinating functions
across various competencies. To rely on a standard auction mechanism
for the allocations would be a historic setback for the domain name
industry, as successful mechanism design is all in the details.
These issues are explored in more detail below.
Introduction
Before developing a mechanism for allocating single-character
domain names, we must compile a list of activities that need to
be coordinated, identify the various abilities and areas of knowledge
the activities require, and then select a project manager—ICANN
or another body—that has these competencies. These will certainly
cover a wide range, with technology, marketing, mechanism design,
and protection of stakeholder interests all being involved.
Below I outline
some of the issues related to stakeholder interests and mechanism
design.
Stakeholder
Interests
1. Determining the objectives of the auction. There are four plausible
objectives, and these are not necessarily mutually exclusive:
a. Extracting
the highest possible value from the sales.
b. Protecting
and validating IP, as a number of U.S. federal trademarks exist
on various domains, notably y.com by Yahoo! Inc.[1]
c. Minimizing
irrational biding exuberance.[2]
d. Resolving
potential feature-related conflicts between the seller (the
domain name community) and buyers. For example, sellers might
prefer features favoring open auctions (for example, having
sequential auctions for the domain names, not simultaneous auctions)
because that way the sellers could learn more about how various
bidders value a domain name.
2. Addressing
what to do with sale proceeds. Plausible uses are:
a. Improving
Internet infrastructure.
b. Supporting
ccTLDs of developing countries.
c. Lowering
registration fees.
d. Distributing
proceeds to existing domain name owners.
e. Developing
a three-regime domain name registration mechanism.[3]
3. Prior to launch, it is imperative that potential buyers and
sellers know about the auction and that they know it will be safe.
Of course, it is also necessary that the auctions really are safe—that
is, buyers must be allocated the domain names they win, and they must
have their private information safeguarded.
Allocation
Mechanisms
In theory, the objective is to award each domain name to
the entity that values it most. The most obvious way to do this
is to use an English Auction, as popularized by eBay. But,
in practice, a mechanism design works only if its rules are tailored
to specific desirable objectives, and if the designer can predict
how participants will actually respond to the rules. Thus, the design
we choose must be created specifically for allocating single-character
domain names.
The biggest
attraction of Internet auctions is that buyers do not all have
to be at the same place to participate. Moreover, they don’t
have to place bids at the same time or wait for the last minute
to bid.[4] Nevertheless, live domain auctions, including those for expired
domain names, are flourishing. We must decide whether live auctions
are desirable for domain name buyers, and whether they are therefore
desirable for single-character domains buyers in particular.
It is important
to get the design right in the first place. The current on-line
advertising auctions went through a number of iterations, but
auctioning the single-character domain names is a onetime process
with no room for experimentation. Moreover, when switching costs are too high or, say,
the bidding process is too complicated, a new superior mechanism
may not be adopted. Ease of use and a straightforward bidding
process are vital. Google’s[5] current auction design,
by which sponsored ads are ranked, is not necessarily optimal.
In fact it has two undesirable features,[6] and some alternative designs
present clear advantages in certain areas.
The team
in charge of allocation design should have a deep understanding
of the theoretical design issues, be intimately familiar with
the domain industry, and be able to draw on the successes and
failures of previous onetime auction design implementations.
[6] Technically, the mechanism does not have equilibrium
in dominant strategies and truth-telling is not an equilibrium.
Topic tags: auctions, ICANN
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