Changes

In the case where multiple entities apply for a single ICANN [[new gTLD]], two main models -- '''ICANN Auctions''' and '''Private Auctions''' -- will be used to determine the winner of each contention set. Exceptions are made in the case of geographic and community-based applicants, who receive preferential treatment over other applicants.

In the case where multiple entities apply for a single ICANN [[new gTLD]], two main models -- '''ICANN Auctions''' and '''Private Auctions''' -- will be used to determine the winner of each contention set. Exceptions are made in the case of geographic and community-based applicants, who receive preferential treatment over other applicants.

In August 2008, ICANN published a document stating the economic case for using auctions in new gTLDs. They cite allocative efficiency, via the following ways in particular:<ref name="economic">[http://archive.icann.org/en/topics/economic-case-auctions-08aug08-en.pdf Economic Case for Auctions in New gTLDs], ICANN.org. Published 8 August 2008. Retrieved 6 December 2012.</ref>

In August 2008, ICANN published a document making the economic case for using auctions to determine the winner of new gTLDs, citing allocative efficiency. In particular:<ref name="economic">[http://archive.icann.org/en/topics/economic-case-auctions-08aug08-en.pdf Economic Case for Auctions in New gTLDs], ICANN.org. Published 8 August 2008. Retrieved 6 December 2012.</ref>

#Applicants whose true intentions or abilities are to serve many users would be able to justify higher bids than applicants who will serve few users;  

# Applicants whose true intentions or abilities are to serve many users would be able to justify higher bids than applicants who will serve few users;  

# Applicants capable of providing high-quality service at low cost would be able to justify higher bids than low-quality, high-cost applicants;

# Applicants capable of providing high-quality service at low cost would be able to justify higher bids than low-quality, high-cost applicants;

# Applicants who intend to develop the gTLD immediately would be able to justify higher bids than applicants whose purpose is to hold the gTLD, unused, for speculative purposes.  

# Applicants who intend to develop the gTLD immediately would be able to justify higher bids than applicants whose purpose is to hold the gTLD, unused, for speculative purposes.  

ICANN notes in the document that though "auctions are not perfectly aligned with ICANN's objectives, alternative allocation mechanisms such as comparative evaluations and lotteries inherently have much more severe limitations and defects".<ref name="economic"></ref>

ICANN notes in the document that although "auctions are not perfectly aligned with ICANN's objectives, alternative allocation mechanisms such as comparative evaluations and lotteries inherently have much more severe limitations and defects."<ref name="economic"></ref>

==ICANN Auctions==

==ICANN Auctions==

ICANN condones private auctions as it encourages all contending applicants to work out contention themselves, presumably through buy-outs, partnerships, and auctions. ICANN offers its own auction model as a last resort. All gTLDs auctioned off under ICANN's auction model will see their proceeds going to ICANN as "excess funds" that go well past covering original costs. Those funds will be redistributed at a later date, in ways that are yet to be determined.<ref>[http://www.slate.com/articles/technology/future_tense/2012/11/icann_s_gtld_auction_proceeds_should_be_used_to_bring_mesh_technologies.html ICANN, Make a Difference], Slate.com. Published 27 November 2012. Retrieved 6 December 2012.</ref>

ICANN condones private auctions, as it has encouraged applicants to resolve contention themselves, presumably through buy-outs, partnerships, and auctions. ICANN offers its own auction model as a last resort. All proceeds from gTLDs auctioned off under ICANN's auction model will go to ICANN as "excess funds" that will be redistributed at a later date, in ways that are yet to be determined.<ref>[http://www.slate.com/articles/technology/future_tense/2012/11/icann_s_gtld_auction_proceeds_should_be_used_to_bring_mesh_technologies.html ICANN, Make a Difference], Slate.com. Published 27 November 2012. Retrieved 6 December 2012.</ref>

==Private Auctions==

==Private Auctions==

Numerous companies have surfaced to offer private auction models, including [[Innovative Auctions]], [[Right of the Dot]], and [[Sedo]]. All offer variations on implementation and services but also share commonalities in their proposed models. The winner will pay the amount of the second-highest bid, split either equally or proportionally between the losing applicants.<ref name="worldipreview">[http://www.worldipreview.com/newsstory.asp?ID=46 New gTLD applicants ponder private auctions], WorldIPreview.com. Published 14 November 2012. Retrieved 6 December 2012.</ref> All applicants for a contention set must agree to participate in order for a private auction to proceed; otherwise, the contention set will be managed via ICANN's Last Resort Auction.

Applicants must decide which private auction model to choose. Numerous companies have surfaced to offer private auction models, including [[Innovative Auctions]], [[Right of the Dot]], and [[Sedo]]. All offer variations on implementation and services but also share commonalities in their proposed models. The winner will pay the amount of the second-highest bid, split either equally or proportionally between the losing applicants.<ref name="worldipreview">[http://www.worldipreview.com/newsstory.asp?ID=46 New gTLD applicants ponder private auctions], WorldIPreview.com. Published 14 November 2012. Retrieved 6 December 2012.</ref> All applicants for a contention set must agree to participate in order for a private auction to proceed; otherwise, the contention set will be managed via ICANN's Last Resort Auction. Applicants interested in private auctions must also decide _when_ they wish to participate. Those who withdraw their applications before ICANN posts its Initial Evaluation results will receive a 70% refund of their $185,000 application fee; those who wait until after the IE stage will only receive a 35% refund.<ref name="worldipreview"></ref>

 

Applicants also have to decide when they wish to enter into private auctions. Those who withdraw their applications before ICANN posts its Initial Evaluation results will receive a 70% refund of their $185,000 application fee; those who wait until after the IE stage will only receive a 35% refund.<ref name="worldipreview"></ref>

Benefits of the private auction model include the following:<ref name="circleid">[http://www.circleid.com/posts/20121203_gtld_contention_set_auctions_private_auction_alternatives/ gTLD Contention Set Auctions: Private Auction Alternatives], CircleID.com. Published 3 December 2012. Retrieved 6 December 2012.</ref>

Benefits of the private auction model include the following:<ref name="circleid">[http://www.circleid.com/posts/20121203_gtld_contention_set_auctions_private_auction_alternatives/ gTLD Contention Set Auctions: Private Auction Alternatives], CircleID.com. Published 3 December 2012. Retrieved 6 December 2012.</ref>

* Failure: If a bid is entered early and the winning bidder fails to pass ICANN's evaluation process, the string could go unclaimed.

* Failure: If a bid is entered early and the winning bidder fails to pass ICANN's evaluation process, the string could go unclaimed.

[[Donuts]] Co-founder [[Jon Nevett]] says that Donuts will handle as many of its contention sets as possible via this method, as auctions will be cheaper and faster for applicants than ICANN's original method. "The cost of losing an ICANN auction is greater than the cost of losing a private auction," Nevett said. "If you lose an ICANN auction you get nothing, zero, you lose your asset... [but with private auctions] it doesn't hurt as much to lose, so the theory is the second-place guys won't stretch as much."<ref name="domainincite"></ref>

[[Donuts]] Co-founder [[Jon Nevett]] says that Donuts will handle as many of its contention sets as possible via private auction, as auctions will be cheaper and faster for applicants than ICANN's original method. "The cost of losing an ICANN auction is greater than the cost of losing a private auction," Nevett said. "If you lose an ICANN auction you get nothing, zero, you lose your asset... [but with private auctions] it doesn't hurt as much to lose, so the theory is the second-place guys won't stretch as much."<ref name="domainincite"></ref>

CEO of Top Level Domain Holdings [[Antony Van Couvering]] has come out in support of private auctions over ICANN auctions, as well. In a article written on June 3, 2013, he discussed the benefits and drawback of each model. ICANN auctions would only deplete applicants' funds, he argues, which could be used for marketing, research, and technology.<ref>[http://www.circleid.com/posts/20130603_icann_auctions_or_private_auctions/ icann or private auctions] Published 3 Jun 13 Retrieved 4 Jun 13</ref>  

CEO of Top Level Domain Holdings [[Antony Van Couvering]] has come out in support of private auctions over ICANN auctions, as well. In a article written on June 3, 2013, he discussed the benefits and drawback of each model. ICANN auctions would only deplete applicants' funds, he argues, which could be used for marketing, research, and technology.<ref>[http://www.circleid.com/posts/20130603_icann_auctions_or_private_auctions/ icann or private auctions] Published 3 Jun 13 Retrieved 4 Jun 13</ref>  

===Applicant Auction===

===Innovative Auctions===

During [[ICANN 45]] in Toronto, auction expert Dr. [[Peter Cramton]] outlined an "ascending clock" model, where a price is increased by the auctioneer at each stage; bidders and sellers can then either drop out or bid on the increased amount.<ref name="domainincite">[http://domainincite.com/10828-heres-how-donuts-wants-to-resolve-its-158-new-gtld-contention-fights Here's how Donuts wants to resolve its 158 new gTLD contention fights]. Domain Incite. Published 2012 October 23. Retrieved 2012 November 13.</ref>  ICANN has identified the same style of auction for its own Auction of Last Resort.<ref>[http://www.cramton.umd.edu/aa/cramton-applicant-auction-in-brief.pdf Applicant Auction in Brief, Cramton.umd.edu]Published 21 Nov 2012, retrieved Jan 7 2013</ref> At his presentation following the ICANN Draw in December, 2012, Dr. Cramton also also addressed a sequential first-price sealed bid, noting that the ascending clock model is still preferred given that it involves: better price discovery, better deposit management, reduced tendency to overbid, and is more consistent with the ICANN Auction of Last Resort.<ref name="Cramton Draw Proposal">[http://www.cramton.umd.edu/aa/cramton-applicant-auction-conference-slides.pdf Cramton Applicant Auction Conference Slides, Cramton.umd.edu]Retrieved Jan 7 2013]</ref> He continues to defend his decision to exclusively offer one style of auction, as opposed to [[Right of the Dot]]'s three options, by writing on [[CircleID]], "Choosing an auction design is not a matter of taste, or of favoring one bidder over another. There is a whole field in economics concerned with determining what the best auction is for a particular situation. Thousands of scientific papers have been written on the subject and much has been learned from decades of study." He goes on to note that using an independent system and auction provider, uniform across auctions, takes away the need to negotiate the auction style between the parties and creates a more predictable playing field.<ref name="CircleID Faq">[http://www.circleid.com/posts/20130107_rationale_for_tld_applicant_auctions_to_resolve_string_contentions/ Rationale for TLD Applicant Auctions to Resolve Strings, CircleId.com]Published 8 Jan 2013, Retrieved 8 Jan 2013</ref>

 

During [[ICANN 45]] in Toronto, auction expert Dr. Cramton outlined an "ascending clock" model, where a price is increased by the auctioneer at each stage; bidders and sellers can then either drop out or bid on the increased amount.<ref name="domainincite">[http://domainincite.com/10828-heres-how-donuts-wants-to-resolve-its-158-new-gtld-contention-fights Here's how Donuts wants to resolve its 158 new gTLD contention fights]. Domain Incite. Published 2012 October 23. Retrieved 2012 November 13.</ref>  ICANN has identified the same style of auction for its own Auction of Last Resort.<ref>[http://www.cramton.umd.edu/aa/cramton-applicant-auction-in-brief.pdf Applicant Auction in Brief, Cramton.umd.edu]Published 21 Nov 2012, retrieved Jan 7 2013</ref> At his presentation following the ICANN Draw in December 2012, Dr. Cramton also also addressed a sequential first-price sealed bid, noting that the ascending clock model is still preferred given that it involves: better price discovery, better deposit management, reduced tendency to overbid, and is more consistent with the ICANN Auction of Last Resort.<ref name="Cramton Draw Proposal">[http://www.cramton.umd.edu/aa/cramton-applicant-auction-conference-slides.pdf Cramton Applicant Auction Conference Slides, Cramton.umd.edu]Retrieved Jan 7 2013]</ref>  

Cramton's original model proposed to run auctions during the first quarter of 2013, before ICANN announced the results of their Initial Evaluation. Such a model would allow losing bidders to receive 70% back from their ICANN application fee, but would pose difficulties if winning applicants later discovered their applications were rejected as other applicants would have withdrawn already, and the new gTLD would be left without an owner. The former model also lumped all TLDs that an individual applicant had applied for in one package. Criticisms stating that such a model would benefit larger companies led to a change, so that auctions will now proceed on a TLD-by-TLD basis, with all auctions being simultaneously resolved at the same time.<ref name="domainincite"></ref> Cramton has indicated that the final auction price will be made public, along with the winning bidder.<ref>email communication from [[Peter Cramton|Dr. Cramton]] 25 March 2013</ref>

Cramton has defended IAL's decision to exclusively offer one style of auction, as opposed to [[Right of the Dot]]'s three options, by writing on [[CircleID]], "Choosing an auction design is not a matter of taste, or of favoring one bidder over another. There is a whole field in economics concerned with determining what the best auction is for a particular situation. Thousands of scientific papers have been written on the subject and much has been learned from decades of study." He goes on to note that using an independent system and auction provider, uniform across auctions, takes away the need to negotiate the auction style between the parties and creates a more predictable playing field.<ref name="CircleID Faq">[http://www.circleid.com/posts/20130107_rationale_for_tld_applicant_auctions_to_resolve_string_contentions/ Rationale for TLD Applicant Auctions to Resolve Strings, CircleId.com]Published 8 Jan 2013, Retrieved 8 Jan 2013</ref>

The first Applicant Auction was held in June 2013, and resolved 6 domains, selling for a combined $9.01 million <ref name="Applicant Auction">[[http://www.applicantauction.com/blog/2013/6/6/first-applicant-auction-a-success-6-domains-valued-at-over-9-million]</ref>. The second auction will be held on August 13th <ref name="Applicant Auction blog">[[http://www.applicantauction.com/blog/2013/6/19/first-applicant-auction-settled-next-auction-august-13th Next Applicant Auction August 13th]</ref>.

Cramton's original model proposed to run auctions during the first quarter of 2013, before ICANN announced the results of their Initial Evaluation. Such a model would allow losing bidders to receive 70% back from their ICANN application fee, but would pose difficulties if winning applicants later discovered their applications were rejected as other applicants would have withdrawn already, and the new gTLD would be left without an owner. The former model also lumped all TLDs that an individual applicant had applied for in one package. Criticisms stating that such a model would benefit larger companies led to a change, so that auctions will now proceed on a TLD-by-TLD basis, with all auctions being simultaneously resolved at the same time.<ref name="domainincite"></ref>  

[[Peter Cramton|Dr. Cramton]] has conducted research on auction theory and practice since 1983, and has facilitated a variety of high stakes auctions, including a large variety of government auctions for resource rights and distribution rights, with [[Cramton Associates]].<ref>[http://www.cramton.umd.edu/ca/ About, Cramton.umd.edu/ca]</ref> Highlights from his high-profile and unique auction experience includes holding the world's first auction on greenhouse gas emissions in the UK in 2002, designing electricity and gas markets in Colombia, and leading the FAA process to auction airport runway slots for New York City airports.<ref name="Cramton Home">[http://www.cramton.umd.edu/ca/ Home, Cramton.umd.edu/ca]Retrieved 7 Jan 2013]</ref>

IAL is the only group that has resolved gTLD contention sets via private auction. The first Applicant Auction was held in June 2013, and resolved 6 domains, selling for a combined $9.01 million <ref name="Applicant Auction">[[http://www.applicantauction.com/blog/2013/6/6/first-applicant-auction-a-success-6-domains-valued-at-over-9-million]</ref>. The second auction will be held on August 13th <ref name="Applicant Auction blog">[[http://www.applicantauction.com/blog/2013/6/19/first-applicant-auction-settled-next-auction-august-13th Next Applicant Auction August 13th]</ref>.

[[Cramton Associates]]' model is preferred by many applicants, including the largest [[TLD]] applicant, [[Donuts]].<ref>[http://domainincite.com/10828-heres-how-donuts-wants-to-resolve-its-158-new-gtld-contention-fights Here's How Donuts Wants To Resolve its 158 Contention Fights, DomainIncite.com]Published 23 Oct 2012, Retrieved 8 Jan 2013</ref> [[Raymond King]], applicant for 10 TLDs with [[Top Level Design]] expressed his favor for Private Auctions in general, and Cramton Associates specifically, in an [http://www.circleid.com/posts/20130102_private_vs_icann_auction_of_last_resort/ opinion piece on CircleID].

[[Innovation Auctions]]' model is preferred by many applicants, including the largest [[TLD]] applicant, [[Donuts]].<ref>[http://domainincite.com/10828-heres-how-donuts-wants-to-resolve-its-158-new-gtld-contention-fights Here's How Donuts Wants To Resolve its 158 Contention Fights, DomainIncite.com]Published 23 Oct 2012, Retrieved 8 Jan 2013</ref> [[Raymond King]], applicant for 10 TLDs with [[Top Level Design]] expressed his favor for Private Auctions in general, and Innovative Auctions specifically, in an [http://www.circleid.com/posts/20130102_private_vs_icann_auction_of_last_resort/ opinion piece on CircleID].

===Right of the Dot===

===Right of the Dot===