A few days ago I opined that if several people want the same Top-Level Domain (TLD) and can’t come to terms otherwise, they should arrange a private auction. It would be an odd sort of auction, since the buyers and sellers are the same people, so unlike normal auctions, the goal is not to maximize the selling price. How might it work?

We have several applicants, call the number N, and an auctioneer. The auctioneer is disinterested, that is, not related to any of the bidders, and has no stake in the outcome. Since the goal of the auction is to persuade all but one of the bidders to drop out, there’s no need for more than one round. Each of the applicants figures out what amount it would take to persuade him to drop out, the highest amount wins, and the losers all get their drop out price.

So assuming that all of the applicants have agreed to participate in this auction:

• Each bidder figures out his price, what it would take to persuade him to drop out.
• Each bidder then sends the auctioneer a bid which is N-1 times his price, plus the auctioneer’s fixed fee. That is, if there are five bidders, and your price is $100,000, send the auctioneer $400,000 plus his fee.
• Each bidder also sends a copy of his TAS login credentials, which the auctioneer can use to log in and cancel the applications of the losing bidders. This avoids problems with applicants reneging on their agreement to drop out. A smart auctioneer will log in and test the credentials before accepting the bid.
• Once the auctioneer has all of the bids, he opens them and finds out who the winner is. If there’s a tie for the highest bid, use a good quality random number source like LavaRnd to draw lots and pick one.
• Each losing bidder gets back his bid, less the auctioneer’s fee, plus the amount of his price taken from the winner’s bid. The winner gets back whatever’s left of his bid after all the losers are paid.
• At some agreed time, the auctioneer logs into TAS and cancels all of the losers’ applications.

Unlike a regular auction, there is no rule against bidders colluding. If several of the bidders want to agree to bid the same, or preferably one bids $1 more to avoid having to fire up the Lavarnd, go ahead. The auctioneer keeps the bids secret until they’ve all arrived, but if any of the bidders wants to tell the others what he’s bid, that’s OK, too. Of course, he might be lying.

The hardest part to figure out here is how to work this in the context of the ICANN application process. The sooner the losers withdraw their applications, the more of their $185,000 application fee they get back. On the other hand, if they withdraw them before ICANN has agreed to delegate the domain to the winner, it’s possible that there will be an unexpected objection either to the applicant (ICANN decides he’s a domain squatter, perhaps), or to the string (the GAC decides it’s a dirty word.) I don’t have a great answer for this beyond all of the bidders agreeing in advance both when the losing applications are cancelled, and when the money is paid out. If the winning bidder is disqualified before the others are cancelled, then it’s straightforward to give the former winner his money back and re-score the auction with the remaining bidders to pick a new winner. If it’s after that, well, oops.