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Studies & Opinions

Domain Name Auction Strategies

Alex Tajirian
April 19, 2004

Closed bid and reciprocal buy-sell bid auctions, if used prudently, are superior strategies to one-on-one negotiations and to open-ascending auctions, the two most commonly used options to sell/purchase domain names.

Below are the standard and two other types of auctions that DomainMart provides, as well as a description of conditions under which they are superior.

Vanilla-Flavor Domain Auction. The popular domain-name auction sites are AfterNIC, eBay (used by DomainMart), and Sedo.  They provide only one class of auctions, called English auction, whereby the bidding is open for all participants to view and the winner is the highest bidder at the end of the auction period.

Sealed-bid Auction. If you are a seller with multiple parties interested in the purchase of your domain name and believe that bidders are likely to overestimate each other’s maximum bid, you are better off with a sealed-bid auction than using an English auction. (Conversely, when a seller believes that the bidders will underestimate each other’s maximum bid, an English auction is superior.)

Under the sealed-bid auction, each interested buyer submits a bid without knowing who else is bidding or how much. The winner is the highest bidder and the domain name is sold at the highest bid price. Using a slight variation (known as Vickery auction), the price paid by the winner (with the highest bid) is that of the second-highest bid.

A sealed-bid auction is superior to one-on-one negotiations if there is only one bidder and that bidder does not know there are no others.

Reciprocal Buy-Sell Bid Auction. Imagine that you own a two-word domain name – for example, -- while another party owns the domain name with the permutation of the two words, Both of you would rather own the two domain names. What would be a fair allocation mechanism?

A fair and simple solution would be a reciprocal buy-sell bid auction, whereby one of the owners, designates a price for which she would either buy or sell at, and the other owner chooses which side of the deal he wants. For example, the first owner announces $10,000, and the other participant says at that price he will buy it.

The scenario can be generalized to any supplementary domain names, such as a combination of the same domain name with different extensions – for example, and, owned by two parties.

DomainMart Services.

These services complement several that DomainMart already offers:

  1. Providing an appraisal for a domain name to aid a bidder in establishing a reserve price, i.e., the minimum price the seller would accept. An appraisal also reduces price uncertainty for the buyer, resulting in making strategic informed bids.
  2. Giving advice and participating in determining the best auction type to use and the best negotiation strategy.
  3. Acting as an independent third party to set up and monitor the auction.

Topic tags: auctions

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