The process for ICANN’s new TLDs says that if there are several equally qualified applicants for a TLD, and they can’t agree which one gets it, ICANN will hold an auction to decide. Recently some people have suggested that the applicants could use a private auction instead. Well, of course. In a situation like this, the question isn’t whether there will be an auction, but only who will keep the money.

Back in the 1980s, when issuing franchises for cellular systems, there were two franchises in each area, called A and B. Only companies that already ran a phone company in the franchise area could apply for the B franchise, but anyone could apply for the A franchise. Any US citizen who met some very mild criteria could apply for about $100, and thousands did, most using application-in-a-box kits. In the inevitable case that there were multiple applicants, the FCC used a lottery to pick one.

Since almost none of the applicants had any interest in operating a cell system, what this mostly accomplished was that the proceeds of the auction rather than going to the FCC went the lucky lottery winners. (This happened for both A and B applications; there are several different phone companies in the franchise area where I live, my tiny rural phone company applied and won, and sold the rights for a lot of money to a larger company.)

Although the prices are higher, the situation with the TLD applications is very much the same. In a few cases, the rules give a preference to certain application or the applicants are likely to work it out. There are two bids for .BANK, one of which appears to be backed by the banking trade association in the US, and the other is a commercial speculator. ICANN will most likely give it to the bankers. And there are two applications for .SWISS, one from the Swiss government, the other from SWISS airlines, who I expect will work something out. But in most cases with competing applications, such as the 13 for .APP, there’s no basis to prefer one applicant. In many cases the same applicants have applied for several domains, so there will doubtless be horse trading, but failing that, there will be an auction.

The most obvious reason to prefer a private auction over ICANN’s is that the losing applicants will save a lot of money. They’ll get some of their $185,000 application fee back, and in most designs they’ll also get paid by the winning applicant. Given the experience with ICANN’s management of the new TLD process so far, a private auction would doubtless be faster than ICANN’s. And also given the experience so far, ICANN would probably screw it up as they have the application process and the inane digital archery pseudo-lottery.

The main reason I can see for an applicant not to prefer a private auction to an ICANN auction would be a strategy in which it believes that it richer than its competitors so it can afford to outbid them and also would prefer that the money go to ICANN than possibly subsidize those competitors. This seems awfully dog-in-the-manger to me, but domain speculators are not noted for their economic logic. There will be the horse trading I mentioned above, but a straightforward way to do that if not all the applicants agree who gets the horse is for the ones who do to collude on their bids in the auction.

A private auction among the bidders would be an odd kind of auction. In a normal auction, the seller is different from the bidders, and the seller’s goal is to find the highest price that someone is willing to pay. But in this case, the goal is to find the lowest price that one bidder is willing to pay and that all the other bidders are willing to accept and go away.

In the next installment, we’ll look at how such an auction could be organized.