CircleID

This is an excellent analysis of the underlying factors explaining the economics of TLD names, and it has some interesting implications for improving our understanding of the economics of SLD names, as well as related public policy issues.

Some important, closely related, economic issues the authors don't mention are the problems of the "tragedy of the commons", and the problem of externalities, both of which are adversely affecting the current system of TLD names.

For example, in creating the TLDs of .COM, .NET and .ORG, it should have been easy for users to "guess" where a particular site will be found, since commercial sites were supposed to have names that end with .COM, network-service provider sites would have names that end with .NET, schools would have names that end with .EDU, and other non-profit and personal sites would have names that end with .ORG, etc.

Unfortunately, this system has become heavily polluted with inconsistencies, reducing the benefits to all participants (both sites and users).

Because the actual names being deployed are failing to follow this conceptual schema (and there are not adequate rules to force participants to follow the system) the total economic benefits from the current TLD system are not being maximized.

One obvious consequence is that artificial scarcity has been created, because so many different types of sites are all trying to crowd into the same limited TLD spaces (especially .COM). Nowadays, even universities (who presumably know better) are ending their sites with .COM, rather than .EDU, creating additional scarcity in the .COM space, and making it harder for users to "guess" where a school's website will be located.

This is similar to what happens when everyone tries to graze their sheep in the particular pasture that happens to be the most convenient, or happens to have the nicest grass--it becomes overcrowded, and everyone is worse off than if some of the farmers were willing (or willing to be paid) to graze their sheep in a less desirable location.

Putting too many different types of sites into the same TLD space also reduces the user benefits cited by the authors. Users cannot accurately "guess" or predict where a particular site will be located when the TLDs lack predictable meaning.

Proliferating more gTLDs will not solve this problem, unless the gTLD expansion is combined with powerful mechanisms to overcome the tragedy of the commons and space pollution problems.

Site operators need incentives (or need to be forced) to only use TLDs for their stated purpose; thereby ensuring that other site operators operating in that "neighborhood" don't suffer from pollution/confusion.

Consider an extreme example: assume a new TLD is created called .KIDS.  The value of this TLD would be greatly diminished, or destroyed, if porno site operators were allowed to operate in this new TLD space. Someone going to FUN.KIDS wouldn't be able to predict if they are going to see simulated child pornography, or a site with all sorts of fun things for children to enjoy.

Proliferating more gTLDs won't solve the current problems unless this effort is part of a much broader, more sophisticated policy solution.