Re: [wg-c] non/for profit

[Milton Mueller <mueller@syr.edu>]

Jonathan Weinberg wrote:

>         This is an interesting question; the larger issue is how much competition we
> have to have before the market will operate properly.  I'm not sure I know the
> answer.  There's some evidence, though, that NSI and the ccTLDs today may not be
> providing significant market constraint: Milton's noted in another context that Matt
> is seeking to sell .md domains for $299/year.  So

This argument is utterly fallacious.

Pray, what is the market share of .MD registrations? How many are being sold at the
$299 price? Of these, how many are speculative, based entirely on anticipation of
continued artificial scarcity? .MD's share of worldwide registrations is less than one
percent, if it is even measurable. In other words, there are severe constraints on
price -- .MD does not have anything near the amount of registrations it could have if
it were charging closer to the true market equilibrium.

I can offer to sell my home for a million dollars. In fact, consider it done -- anyone
want to pay me a million dollars for a 4-bedroom, 10-year old home in Syracuse? I love
my home, but I'd sell at that price. That doesn't make it the market price, and it
doesn't prove a damn thing about the level of competition in the real estate market
here.

And if, given many cheaper options, some people value .MD registrations enough to pay
$299 for them, who are we to say this should be prohibited or regulated? If someone
takes up the offer to buy my home for a million dollars, would you send in the
regulators to stop them, Jon?

> at least some people think the current marketplace leaves room for
> outrageously high, non-cost-based prices.

Outrageous to who? No one has to pay that price.

> It doesn't strike me as wholly
> implausible that a registry annointed as one of the first "real,"
> "official" new commercial gTLDs might be able to exploit pent-up demand — and the
> fact that its SLDs, in contrast to those in .com, are actually available — to
> extract significant rents.

This is a more plausible argument. But such problems are inherent in the policy of
artificial scarcity, which the 6-10 limitation on the initial new gTLDs perpetuates.
So thank you for another strong argument for an initial declaration that a large
number should be added over a fixed period of time. It's not too late to add your name
to Position Paper B.

>         [2] If there is a problem, is the non-profit/for-profit distinction the
> right way to approach it?
>
>         Milton urges that, in any event, non-profits are as likely to set prices at
> profit-maximizing levels as for-profits are.

No, I did not. I argued that non-profits >might< engage in opportunistic behavior, and
that some demonstrably >do< act to maximize their revenues. Whether they are
statistically *just as likely* to do so as for-profits is unknown, and is not
relevant. The simple fact is that we have no idea which non-profits will behave in
which manner. Therefore, whatever policy is applied to new registries cannot
discriminate between profits and non-profits. Or, if it attempts to so discriminate,
ICANN will have to engage in highly intrusive regulation of the distribution of
surplus revenue. This cure strikes me as worse than the disease, given the existing
options available to consumers.

Indeed, your own argument below ends up conceding the irrelevance of the distinction.
You ask whether a ceiling price is necessary regardless of whether we are talking
about profit or non-profit registries. I view this as another step forward in the
consensus-building process. It seems that no one is now prepared to base policy upon
that distinction.

> it seems possible to construct particular non-profit organizations in forms that
> will make them likely to set prices at cost- recovery levels.  As Kent has pointed
> out, setting up a registry as a cooperative controlled by its customers is a pretty
> effective way.  (The customer-owned cooperative, in the real world, is often poorly
> managed, and may have other flaws.  But it tends to set its prices at cost-recovery
> levels.)

Once again, you've overlooked the most salient part of my argument. Yes,
profit-maximizing registrars may have an effective incentive to impose cost-based
pricing on a registry. If that is true, the creation of two or three of these
registries is sufficient to give customers another competitively-priced option in the
marketplace.  Such an option acts as a real constraint on the other registries using
other models.

If the advocates of this model are sincere, they should be content to accept the
existence of two or three of them. that, and the regulation of NSI on cost-plus
models, more than compensates for any concerns about market power.

I am just a bit more modest than others about making assumptions about the optimality
of a specific model. The cooperatively owned rgeistry may work fine. OTOH, we may very
well find out that in a deregulated market for-profit registries charge less than
non-profits, perhaps because they bundle the service with other, more profitable
services. There are lots of models, some we haven't even thought of yet. DNS
registration is a tiny part of the overall Internet services picture. I think it is
idiotic for ICANN to be in the business of imposing business models on these services.

>         Nonetheless — as more than one person has pointed out — it may be
> distracting and unhelpful to focus on the blanket "for-profit" and "non-profit"
> labels.  As Roeland notes, the mere fact that an entity is classed as non-profit
> does not magically endow it with "enlightened benevolence."  Rather, we need to
> consider more specific structures or rules that will lead registries,
> notwithstanding market power, to set prices at or near competitive levels.

You don't need "specific structures and rules." You need to let competition happen.
Right now, ICANN, the DoC, and this working group are the biggest obstacle to setting
prices "at or near competitive levels," because we are actively preventing the entry
of new competitors. Competition in monopoly industries is always driven primarily by
entry, not by regulation. At best, regulation eliminates certain barriers to entry.
But the regulatory mindset that bars hundreds of potential entrants in order to
satisfy some purely theoretical notions of how structure and conduct are related is
truly perverse.

> This gets us back to the question raised before: To the extent that we think
> registry market power may be a problem (for either for-profit or non-profit
> registries), b/c the market for registry services is not yet competitive, what
> structures -- or provisions in the registry contracts -- would be appropriate to
> ensure that the registries don't inappropriately exploit that market power?  A few
> days ago, I suggested the "ceiling price."  Does anybody else have other
> suggestions?

I have made a suggestion. There is no need for "specific structures and rules" to
regulate rates.

You have attempted to answer that by arguing that the existence of above-market prices
in an obscure corner of the DNS universe shows that market constraints are not
effective. This was refuted by showing that the entity charging those prices has no
appreciable share of the market. I assume that you are familiar enough with the
literature on market power to understand that an entity with no market share cannot
have market power. It was further refuted by showing that even within the artificial
constraints of the 6-10 consensus, the creation of 2-3 shared cooperative registries
would, in addition to the regulation of NSI rates, provide the bulk of customers with
an option that, if your reasoning is correct, would protect them from market power.

--MM