[Gnso-newgtld-wg] Vickey auctions

Thu Jul 9 19:16:12 UTC 2020

Christa,

We already discussed and I believe we agreed as a group to the following recommendations which will be out shortly as part of Package 7:

Recommendation xx (rationale 9): If an applicant qualifies for Applicant Support and is part of a contention set that is resolved through an auction of last resort, a bid credit, multiplier, or other similar mechanism must apply to the bid submitted by that applicant.

Implementation Guidance xx (rationale 9): Research should be conducted in the implementation phase to determine the exact nature and amount of the bid credit, multiplier, or other mechanism described in recommendation xx. Research should also be completed to determine a maximum value associated with the bid credit, multiplier, or other mechanism.

Implementation Guidance xx (rationale 9): If the Applicant getting Applicant Support prevails in an auction, there should be restrictions placed on the Applicant from assigning the Registry Agreement, and/or from any Change of Control for a period of no less than three (3) years. This restriction seeks to prevent gaming of the Applicant Support Program whereby an applicant transfers its ownership of a registry to a third party in exchange for any form of financial gain. However, assignments that become necessary for the following reasons shall be permitted:
·        Assignments due to going out of business
·        Assignments due to death or retirement of a majority shareholder
·        Assignments due to EBERO
·        Assignments to affiliates or subsidiaries
·        Assignments required by competition authorities

All assignments after such time shall be governed under the then-current Registry Agreement standard provisions; provided that any Assignment or Change of Control after the third year, but prior to the seventh (7th) year, shall require the applicant to repay the full amount of financial support received through the ASP Program plus an additional ten percent (10%).

Hope that helps.

Jeff Neuman
JJN Solutions, LLC
Founder & CEO
+1.202.549.5079
Vienna, VA 22180
Jeff at JJNSolutions.com
http://jjnsolutions.com<http://jjnsolutions.com/>

From: Gnso-newgtld-wg <gnso-newgtld-wg-bounces at icann.org> On Behalf Of christa at dottba.com
Sent: Thursday, July 9, 2020 2:47 PM
To: 'Kurt Pritz' <kurt at kjpritz.com>; 'Kathy Kleiman' <kathy at kathykleiman.com>
Cc: gnso-newgtld-wg at icann.org
Subject: Re: [Gnso-newgtld-wg] Vickey auctions

Hi All,

Adding to Kurt, Kathy and Donna’s comments.

I feel like we are putting the cart before the horse.  I’m not sure how we can adequately discuss auctions until we iron out the auction bid credit/multiplier for Applicant Support applicants as:

  *   Bid credits/multiplier provide incentives to Applicant Support applicants putting other applicants within that contention set at a disadvantage
  *   Auction credits provide financial incentives and the potential of gaming
  *   Potential bid credit maximums may affect bidding methodology
  *   Change the dynamics of resolving a contention set via creative solutions/JVs
  *   Impact all other applicants within that contention set
  *   Sufficient time to prepare and secure additional funding for example, 30 days to submit a bid is unreasonable
  *   Educational component on auction process, bidding strategy, values, funding, etc.
One scenario, a contention set of six with one AS applicant, first person lucky enough to enter into a JV with the AS applicant is at an economic advantage and has the trump card to ensure the auction is through ICANN.  Depending on your perspective, this may have a positive/negative outcome but we haven’t discussed these types of scenarios or considered the implications and potential safe guards.

I’d suggest that we cover off bidding credit/multipliers beforehand so we can have comprehensive discussions in order to develop all-encompassing recommendations.  If not, I think we’ll need to return to the auction discussion to address the deficiencies.

Cheers,

Christa

From: Gnso-newgtld-wg <gnso-newgtld-wg-bounces at icann.org<mailto:gnso-newgtld-wg-bounces at icann.org>> On Behalf Of Kurt Pritz
Sent: July 9, 2020 11:29 AM
To: Kathy Kleiman <kathy at kathykleiman.com<mailto:kathy at kathykleiman.com>>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: Re: [Gnso-newgtld-wg] Vickey auctions

Hi Kathy:

A fine point: I believe a Vickrey auction is one where the parties don’t know the bids of the other parties bit can know their identities.

Regardless of whether a Vickrey, top-price or ascending bid auction model is selected, my concern has to do with the timing of the sealed bid. I can think of nothing more discouraging to a newcomer, investor and potential contributor to the domain name industry than to say, “Pay the $185,000 application fee and, oh yeah, give us a sealed bid for how many millions you will bid in a sealed auction where the delegation might take place months or years from now.” Pile onto that the uncertainty of how the evaluation process will play out and additional costs that might be added, how many bidders there are, who they are, and the relative value of TLDs at some point in the future when the delegations are made. I don’t know of any other auctions that operate in this manner. In other instances, sealed bids are generally required just before the final award.

Put another way, requiring the sealed bid at the time of application will greatly discourage new participants — especially smaller ones — from our industry. If we are seeking to encourage competition and choice, then the auction should take place close in time to the delegation — whether the auction is sealed bid - top price, sealed bid - Vickrey, or the clock model applied in the first round.

A final point if I may, is that there has been a substantial amount of study done on the benefits and drawbacks to Vickrey auctions — and there have been examples of unintended detrimental results. The articles I read indicate that each instance includes a complex set of issues requiring advice of competent economists prior to selection of a Vickrey mechanism. The SubPro group might have had long discussions regarding this but I do not think they have been appropriately deep or informed by economics science.

I do not have an issue as to whether a Vickrey or other form of auction is selected, but think there should be an appropriate study if we are to deviate from the past. Our high-level policy recommendation might be to select an auction model encouraging "individuals bid truthfully” and alert ICANN to consider Vickrey as an alternative to the current model and the need for study as part of the implementation.

Maybe ICANN could get that study going now so that it could inform the implementation effort.

Thanks this opportunity to speak up everyone.

Kurt

On Jul 9, 2020, at 10:12 AM, Kathy Kleiman <kathy at kathykleiman.com<mailto:kathy at kathykleiman.com>> wrote:

Hi Donna,
Tx for the question. In a true Vickery Auction, the parties don't know who they are bidding against.  Everyone then has the opportunity to bid what they think the TLD is worth to them -- without knowledge of who they are bidding against.  A bidder  can't raise the bid knowing they are bidding against a small party, a single TLD, or a Global South applicant.

That means that the bids, overall, are lower. Hopefully, this will allow the occasional small party, single TLD, or Global South applicant may win -- and that's one of the goals we have sent for our program.

Again, appreciate your question.
Best, Kathy

----- Original Message -----
From:
"Austin Donna" <Donna.Austin at team.neustar<mailto:Donna.Austin at team.neustar>>

To:
"Kathy Kleiman" <kathy at kathykleiman.com<mailto:kathy at kathykleiman.com>>, "gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>" <gnso-newgtld-wg at icannorg>
Cc:

Sent:
Wed, 8 Jul 2020 15:33:49 +0000
Subject:
RE: [Gnso-newgtld-wg] Vickey auctions
Kathy

The Vickrey auction model may be inherently expedient, but I’m still not convinced that it is inherently fair particularly among players large and small. I’m interested to understand how you think this is the very best way to ensure that smaller parties can prevail from time to time and that the Global South can obtain a share of new gTLDs.

Donna

From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf Of Kathy Kleiman
Sent: Monday, July 06, 2020 7:30 AM
To: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: [Gnso-newgtld-wg] Vickey auctions

Hi All,

For days and months we discussed auctions and ways to improve them. One thing we learned is that Vickrey auctions are inherently fair.  They provide a process that encourages bidders to bid the price that is fair to them -- and set out exactly what they are willing to pay. They avoid collusion and unfair dealing. I thought we had agreed to recommend this method -- a sealed bid at the time of application.

I want to reintroduce some of what we learned about Vickrey Auctions in our long discussions -- and why they are a trusted method of auctions among players large and small and with an array of resources.  I think it is the very best way to ensure that smaller parties can prevail from time to time, and that the Global South can obtain a share of new gTLDs.

Best, Kathy

-----------------------------------------------------------------------------------------------------------------------------

What is a Vickrey Auction?

https://corporatefinanceinstitute.com/resources/knowledge/other/vickrey-auction/<https://urldefense.com/v3/__https:/corporatefinanceinstitute.com/resources/knowledge/other/vickrey-auction/__;!!N14HnBHF!owM79hXrIldCESZnBUdA6FpA7CuFv2fr6Q6QHzhAgMoYrXoCxFqRe6V5LVNMOZQ2c9sc%24>

A Vickrey auction is a sealed-bid auction where bidders submit bids without knowing the bids of other people. However, as opposed to other sealed-bid auctions, the price paid is the second-highest bid price and not the winning bid price. The Vickrey auction was named after William Vickrey, a Canadian who won the 1996 Nobel Prize in Economics for his research on asymmetric information<https://urldefensecom/v3/__https:/corporatefinanceinstitute.com/resources/knowledge/finance/asymmetric-information/__;!!N14HnBHF!owM79hXrIldCESZnBUdA6FpA7CuFv2fr6Q6QHzhAgMoYrXoCxFqRe6V5LVNMOdllQwyz%24> in economics.

Understanding a Vickrey Auction

In a Vickrey auction, the individual is bidding their true value and are not trying to assess what everyone else is going to bid. Therefore, in a Vickrey auction, the individual is bidding the maximum amount they are willing to pay and are not disadvantaged by it.

By utilizing the second-price mechanism<https://urldefense.com/v3/__https:/www.researchgate.net/publication/228296863_How_Good_is_the_Generalized_Second-Price_Mechanism__;!!N14HnBHF!owM79hXrIldCESZnBUdA6FpA7CuFv2fr6Q6QHzhAgMoYrXoCxFqRe6V5LVNMOS7ZLYJt%24> in a Vickrey auction, individuals bid truthfully – individuals are motivated to bid their maximum value because the individual understands that if their bid wins, they will only need to pay the second-highest bid value.

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