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Offline toast

.p2p auction parameter discussion
« on: June 29, 2014, 06:17:17 PM »

Help me reason through these incentives.

There are two critical parameters at play, let's call them R (above 0) and D (between 0 and 1).

The rules for an auction are:
1) The initial required bid is 0.
2) Your required_bid is equal to (previous_bid + (R*(previous_bid - previous_required_bid))
3) When you place a bid, (D*(your_bid - previous_bid)) goes to dividends and (previous+bid + (1 - D)*(your_bid - previous_bid)) goes to previous bidder.


An example: suppose R = 1 and D = 0.5

Brand new auction.
I bid 100. My required bid was 0, so the next person must bid 200.   (100 goes to dividends as there is no previous bidder)
Next person bids 210. His required bid was 200, so next required bid is 220.  (Previous bidder gets 150, 50 goes to dividends)
Next person bids 300. His required bid was 220, so next required bid is 380.  (Previous bidder gets  255, 45 goes to dividends).


Thoughts:
*  R needs to be high enough to realistically motivate people to bid as high as they would be willing to pay right form the start. I'm thinking this might happen even with a value less than 1.
*  D needs to be low enough to motivate people to call people out on low bids, but high enough to make outbidding yourself not worth it (extra price buffer more worthwhile than money you save from your own kickback).
« Last Edit: June 29, 2014, 09:32:23 PM by toast »
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Offline onceuponatime

Re: .p2p auction parameter discussion
« Reply #1 on: June 29, 2014, 08:17:15 PM »
What are the units and potential variability of the value of the bid?

"I bid 100" of what? 

Offline amatoB

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Re: .p2p auction parameter discussion
« Reply #2 on: June 29, 2014, 08:23:03 PM »
Help me reason through these incentives.

There are two critical parameters at play, let's call them R (above 0) and D (between 0 and 1).

The rules for an auction are:
1) The initial required bid is 0.
2) Your required_bid is equal to (previous_bid + (R*(previous_bid - previous_required_bid))
3) When you place a bid, (D*(your_bid - previous_bid)) goes to dividends and (previous+bid + (1 - D)*(your_bid - previous_bid)) goes to dividends.


An example: suppose R = 1 and D = 0.5

Brand new auction.
I bid 100. My required bid was 0, so the next person must bid 200.   (100 goes to dividends as there is no previous bidder)
Next person bids 210. His required bid was 200, so next required bid is 220.  (Previous bidder gets 150, 50 goes to dividends)
Next person bids 300. His required bid was 220, so next required bid is 380.  (Previous bidder gets  255, 45 goes to dividends).


Thoughts:
*  R needs to be high enough to realistically motivate people to bid as high as they would be willing to pay right form the start. I'm thinking this might happen even with a value less than 1.
*  D needs to be low enough to motivate people to call people out on low bids, but high enough to make outbidding yourself not worth it (extra price buffer more worthwhile than money you save from your own kickback).

I'm not sure I fully understand the incentives, but my quick impression is that R should not be too large.

At some point, a high R will dissuade a new bidder from joining in (because the increment to the next required bid amount overshoots their valuation). Anticipating this, a speculator might believe that he won't recoup his expenses and may be wary of bidding in the first place. Then the whole market could unravel...

Offline amatoB

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Re: .p2p auction parameter discussion
« Reply #3 on: June 29, 2014, 08:43:19 PM »

*  R needs to be high enough to realistically motivate people to bid as high as they would be willing to pay right form the start.

Why is this necessary? In practice (e.g., like on EBay), short auction times can be a powerful motivator to get people to bid at or near their valuations. Couldn't setting R high (to motivate people to bid their true value right from the start) exclude speculators and hinder price discovery? Some auctions might not start at all, with the names sitting idle...

Offline toast

Re: .p2p auction parameter discussion
« Reply #4 on: June 29, 2014, 08:53:19 PM »

*  R needs to be high enough to realistically motivate people to bid as high as they would be willing to pay right form the start.

Why is this necessary? In practice (e.g., like on EBay), short auction times can be a powerful motivator to get people to bid at or near their valuations. Couldn't setting R high (to motivate people to bid their true value right from the start) exclude speculators and hinder price discovery? Some auctions might not start at all, with the names sitting idle...

The purpose of R is to get information out of people who are willing to bet the domain should be worth more but don't want to actually hold it.

Your second point doesn't make sense... if R is high and people are motivated to bid the true value right from the start isn't that the opposite hindering price discovery or having auctions not start at all?
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Offline toast

Re: .p2p auction parameter discussion
« Reply #5 on: June 29, 2014, 08:59:38 PM »
I agree with your point about R needing to be reasonably low though... 1 is probably way too big.
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Offline amatoB

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Re: .p2p auction parameter discussion
« Reply #6 on: June 29, 2014, 09:07:04 PM »

*  R needs to be high enough to realistically motivate people to bid as high as they would be willing to pay right form the start.

Why is this necessary? In practice (e.g., like on EBay), short auction times can be a powerful motivator to get people to bid at or near their valuations. Couldn't setting R high (to motivate people to bid their true value right from the start) exclude speculators and hinder price discovery? Some auctions might not start at all, with the names sitting idle...

The purpose of R is to get information out of people who are willing to bet the domain should be worth more but don't want to actually hold it.

Your second point doesn't make sense... if R is high and people are motivated to bid the true value right from the start isn't that the opposite hindering price discovery or having auctions not start at all?

In some cases, people may be uncertain of the value; they might need to combine their own information/beliefs with information in the marketplace, i.e., what they observe in the market from bidding action and such. Maybe that's why you sometimes see EBay auctions with low starting prices actually end up higher than identical items with much higher starting bid minimums. Bidder irrationality and psychology are also factors to consider.

I'm just thinking that there might be a tradeoff in R. People are naturally drawn to bidding action (for rational and irrational reasons). Too high of an R value might dissuade some speculative bidders from dipping a toe in the water.

Offline onceuponatime

Re: .p2p auction parameter discussion
« Reply #7 on: June 29, 2014, 09:22:40 PM »
What are the units and potential variability of the value of the bid?

"I bid 100" of what?

I get it now.   :-[

Offline Agent86

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Re: .p2p auction parameter discussion
« Reply #8 on: June 29, 2014, 10:44:21 PM »
I don't understand how your incentives stop squatting; you're still letting people buy a domain and then renew it indefinitely for a transaction fee.

The way I would do it: the domains are owned by the DAC, we rent/lease them for use.

People can bid on a 1 year lease.  You don't have to do this complicated stuff where half the difference goes to the DAC etc.  You just have an auction for a 1 year lease and whoever wins pays the DAC up front for 1 year.  They can extend the lease at the same rate whenever they like to keep the lease expiration date up to one year into the future.

If someone else has their eye on the domain, they can put in a bid with an upfront payment for a 1 year lease at a higher rate.  At that point, the current owner has options.  They can sublease the domain to the higher bidder and collect the difference until the date that their lease is up.  Or they can continue to extend their lease at a rate that matches the higher offer.  If they ignore the bid then they can no longer extend their lease at their old rate and the new bidder takes over when their lease expires.

I would also say people who have held domains for a long time have the option to extend their lease further into the future (up to the length of time they've held the domain)  So if you've rented it for 3 years you can prepay your lease for 3 years into the future so you know you won't be priced out of your domain without lots of warning.  Even if they prepay for 3 years they have to complete at least 1 transaction per year like everyone else to verify they haven't lost their key.

Offline toast

Re: .p2p auction parameter discussion
« Reply #9 on: June 29, 2014, 11:09:47 PM »
I've thought a solution like yours before and I don't really like it. One issue is that it doesn't let people capture the value they added to a name. The other value proposition of this DAC is that you can finally *own* a domain, not just have it leased to you by ICANN.


The goal is not that "your" domain is available (not being 'squatted'), just that it is being sold by someone who wants to sell it to you for a fair price.

These incentives just make it more profitable for you not to squat and simply hold nameshares unless you know that you can flip a domain for *higher than what the market currently prices it at*. There is still room for "squatters", but these are more like real estate companies. They want to sell their space and will eat their losses as soon as it becomes obvious they made a bad bet.

There's another discussion to be had about whether to limit the number of concurrent auctions near the start when it is not clear that the .p2p namespace is worth anything at all, and whether to keep it limited to some larger number once it is just to make it so that humans can go through and evaluate all the domains for sale at a given time.
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Offline amatoB

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Re: .p2p auction parameter discussion
« Reply #10 on: June 29, 2014, 11:19:44 PM »
Potential cyber-squatting seems like an important issue to consider. If I understand correctly, the proposed system solves it to some degree.

Apparently, the proceeds from a resale are largely captured by the network, not by the holder who puts a name back on auction (is this accurate?) So, the proposed system is sort of like a lease. For example, a name might be worth 500, but if a potential cybersquatter can only personally get 100 from putting it on auction later, then they have much less to gain from squatting in the first place. It's a rather clever system, the effectiveness of which will depend on the parameter choices. A lot of thought and tweaking will probably be needed to choose the best implementation of the basic idea to get the economics right.

Having said that, I think the system as proposed doesn't completely eliminate bad behavior. For example, someone might lock up a name to harm a competitor, celebrity, or wealthy person, and then demand a public or private ransom in order to release the name back onto the market. Unless there are private rights of action like the ability to sue for cybersquatting, how would such behavior be checked under the proposed system? Combining the new auction system with term limits on right of usage might be a good idea. The winning bid could be a per-year lease rate, for example.

The kick-backs are a clever and essential feature, though. They directly reward value-finders and shareholders, and they help facilitate price discovery in a world of costly search and costly information.

Offline toast

Re: .p2p auction parameter discussion
« Reply #11 on: June 29, 2014, 11:34:45 PM »
Apparently, the proceeds from a resale are largely captured by the network, not by the holder who puts a name back on auction (is this accurate?)

A seller can start an auction at whatever price, and will get at least that much (+ kickback ratio * difference). The rest will go to network (dividend ratio on all subsequent bids). Otherwise all sales would be off-market, which would stop us from capturing potential income from bidders the original seller didn't know about.

Quote
So, the proposed system is sort of like a lease. For example, a name might be worth 500, but if a potential cybersquatter can only personally get 100 from putting it on auction later, then they have much less to gain from squatting in the first place. It's a rather clever system, the effectiveness of which will depend on the parameter choices. A lot of thought and tweaking will probably be needed to choose the best implementation of the basic idea to get the economics right.

It is even more clever if dividends are explicit - you'd suffer a very concrete opportunity cost any time you choose to hold domains over their equivalent value of shares. Still on the fence about whether the extra complexity from explicit dividends are worth it. (Also tax implications, which is stupid and hilarious because it's literally just a bunch of careful UI changes...)
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Offline Agent86

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Re: .p2p auction parameter discussion
« Reply #12 on: June 29, 2014, 11:41:08 PM »
I've thought a solution like yours before and I don't really like it. One issue is that it doesn't let people capture the value they added to a name. The other value proposition of this DAC is that you can finally *own* a domain, not just have it leased to you by ICANN.


The goal is not that "your" domain is available (not being 'squatted'), just that it is being sold by someone who wants to sell it to you for a fair price.

These incentives just make it more profitable for you not to squat and simply hold nameshares unless you know that you can flip a domain for *higher than what the market currently prices it at*. There is still room for "squatters", but these are more like real estate companies. They want to sell their space and will eat their losses as soon as it becomes obvious they made a bad bet.

There's another discussion to be had about whether to limit the number of concurrent auctions near the start when it is not clear that the .p2p namespace is worth anything at all, and whether to keep it limited to some larger number once it is just to make it so that humans can go through and evaluate all the domains for sale at a given time.
I disagree, I think domain names are basically "the commons" and should be treated as such.  This puts the domain name into the hands of the people who can maximize it's value... I think that's more efficient for everyone.   You can still profit from a domain you added value to by subleasing it.  If you have your own domain that isn't something real generic, no one has a reason to bother you or bid on it and you'll have it cheaper than something from godaddy.

I also think your current plan has big squatter problems.

Offline toast

Re: .p2p auction parameter discussion
« Reply #13 on: June 29, 2014, 11:50:44 PM »
You can still profit from a domain you added value to by subleasing it.

But you can only do this until your lease expires and you are forced to compete on the market again afterwards, right?

Quote
I also think your current plan has big squatter problems.

Can you explain? You think it will be worse than .com / .bit, or just "not much better"
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Offline Agent86

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Re: .p2p auction parameter discussion
« Reply #14 on: June 30, 2014, 12:12:48 AM »
You can still profit from a domain you added value to by subleasing it.
But you can only do this until your lease expires and you are forced to compete on the market again afterwards, right?
Sure, but if you just got the site, you should be content with the quick profit... It's not much different than losing the auction, someone else values it more so those are the breaks.  If you've had it a long time, you can sublease it for a long time and make good money.  Also, someone needs to be real serious before they put in a bid because they need to come up with the money for all those years and if you call their bluff they better have a plan for what they will do with that site and how they'll get ROI if you move on.  If they didn't have a plan they'll be panicking to sell it because it's costing money they can't just sit on it forever.
Quote
Quote
I also think your current plan has big squatter problems.
Can you explain? You think it will be worse than .com / .bit, or just "not much better"
I can't say I've thought it through extensively but as first glance I would say "not much better" plus more confusing.  I'm not sure many people are going to be playing the game of trying to profit by bidding on sites and then hoping someone outbids them and hoping they don't get stuck with a site they had no use for; it seems like a lot of work to me.  As you already pointed out, early on people will be able to scoop up domains cheap because no one is sure if it will catch on.  Then they can keep the domains as long as they want and extort people who have a use for them, I think it would make the system less likely to catch on.

 

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