[ncdnhc-discuss] Names Council agenda item request: discussion of wholesale price for names

[kent at songbird.com]

On Mon, Aug 26, 2002 at 02:03:11PM -0400, Milton Mueller wrote:
> 
> Federal Trade Commission economists did an analysis 
> for the Commerce Department back in 1998. The answer
> in a word, is "long-term contracts;" i.e., competition 
> would push registries into offering longer contracts
> to those who were concerned about lock-in. I don't
> have time to go into more detail. One can find the FTC
> report here
> http://www.ntia.doc.gov/ntiahome/domainname/130dftmail/scanned/FTC.htm

That FTC report, unfortunately, was terribly shallow, and exhibited a
serious lack of understanding of the problem domain.  For example, it
makes the following assertion:

    It would appear plausible that the absence of domain name
    portability across registries could impose a switching cost on users
    who change registries.  For example, if a firm must invest
    substantial resources to familiarize consumers with its web-site
    name (e.g., "brandname.biz"), the cost of switching to a new site
    (e.g., "brandname.store") would consist of the incremental
    investment that it would have to make to inform consumers of the new
    name, plus any lost profits from forgone sales (because some
    consumers never learn the new site). 

This blithe statement completely ignores the value of casual linkes that
exist in web sites.  That is, one can't simply "inform consumers" of the
change -- to do a complete job one would have to undo the myriad of
links that build up in the web.  In general, this is impossible, because
urls are not bidirectional.  Moreover, a link in a web page doesn't in
general show the url -- people click on links to sites without ever
knowing the domain name involved.

"Long-term contracts" was one of several potential mitigating factors
that the FTC mentioned, not the only one.  But it also demonstrated a
terrible lack of thought about the problem.  In the case of domain name
registrations, long term contracts are essentially useless as a means of
preventing lockin, because the cost of a domain name is completely out
of proportion to the value.  Amazon could get a 10 year contract for its
domain name ($70 at Godaddy), and after 10 years a hundredfold increase
in price would still come nowhere near the value of the domain to
amazon.

> >>> "Harold J. Feld" <hfeld at mediaaccess.org> 08/26/02 01:21PM >>>
> _sigh_
> 
> Any half-way competent economist can tell you the answer (or at least, 
> an answer).

An answer, sure.  "The" answer is a bit harder.

>  For some domains it will be high (e.g., "Amazon.com" has 
> tremendous brand recognition and the cost of switching to "Amazon.store" 
> or "XDFE at .random" or even "somethingelse.com" would be very high.).  For 
>   others it will be lower.  Competent economists will work their models 
> for general costs and come up with a range of answers depending on who 
> is paying their bill.
> 
> "Lock in" is not unique to DNS.

No, of course not.  But DNS has a number of unique characteristics that
significantly complicate the analysis.  Moreover, both the technical and
the economic conditions surrounding DNS change fairly rapidly. 

>  And there are various ways to try to 
> solve it.  Folks in the U.S. telecom world may be familiar with "number 
> portability."  We are now dealing with this in U.S. mass media policy in 
> DTV and fights over channel placement.
> 
> Whether introduction of new TLDs creates sufficient competition to 
> resolve the switching cost issue is actually subject to economic 
> analysis.

Perhaps.  One also must consider that even in areas where there is 
considerable experience, economists sometimes get it wrong...it isn't 
known as the dismal science for nothing...

Kent