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An Economist Takes an Accounting of ICANN’s Economic Report

Posted October 7th, 2009

Dennis Carlton’s economic report on ICANN’s proposed mechanism for introducing new gTLDs was published June 5, 2009. Go HERE to see the report. This report does not bring clear economic answers to the question of knowing if new gTLDs are advantageous for the consumer, the corporate sector or public institutions.

There is no mathematical or formal economic demonstration in Carlton’s report as we might expect in such a study. Carlton based his predictions largely on other studies (but not studies on TLDs).  Furthermore, the report is completely U.S. oriented, and does not take into account the economic specificities of the EU market, Asian, Latin American or African markets.

Results of the Carlton report are based on the assumption of perfect competition and free markets, which is not the case with gTLDs or ccTLDs. TLDs do not operate in a free market, but in a complex and controlled market with one registry per extension (.com, .net, etc.) contractually linked with ICANN, many registrars depending on the registries and ICANN, and many resellers. The price structure of this market is not free. Indeed, there is a fixed price of production and one registry that fixes prices. It is nevertheless true that the new gTLDs could bring more competition but as none of the details of this market are known so far, it is very difficult to come to a conclusion on prices, number of registries, etc.

Carlton’s report is based on the assumption that trademark owners already benefit from adequate protection under the actual scheme (UDRP, etc.) and that any form of restriction at entry would harm consumer welfare (translation: any supplementary form of protection for the trademark owner will harm consumer welfare). However, the report fails to mention the reality of the high costs of defensive registrations (plus the higher cost of disputes) to corporate trademark owners, which are ultimately paid for by the consumer. The results are that some restrictions at entry might actually benefit the consumer as they save the corporate sector defensive registrations and claims costs.

In theory, the consumer should benefit from more competition in the domain name system, but since there is no economic demonstration of this benefit in Carlton’s study, some doubt is cast on this assumption. gTLDs so far have not been a free market and will not be so because each new domain extension will be monopolized by one registry. In my opinion, the new gTLD market (as it is presently presented by Carlton and ICANN), the consumer and the corporate sector will not be better off. The only beneficiaries from the new gTLDs will be new and existing registries as they will be in a position to determine price.

Dr. Hughes Chevalier is CFO of IP Twins

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