[arin-ppml] Policy Proposal: IPv4 Recovery Fund

Stephen Sprunk stephen at sprunk.org
Sun Nov 23 12:30:50 EST 2008

Leo Bicknell wrote:
> In a message written on Sun, Nov 23, 2008 at 11:11:14AM -0500, Milton L Mueller wrote:
>> Don't agree - you haven't reached a failure, you've reached a situation
>> that prevails for 90% of all material resources in society. Anyway, I
>> suspect we are near that situation now. (It's a guess, of course)
> I actually see three distinct phases that will occur, no matter
> what transfer policy is or is not passed.  What the different
> policies do is change the timing of the transitions between phases,
> primarily.
> Phase 1: The current state, there is a free pool.
> Phase 2: There is no more free pool, but enough people are willing to
>          give up space at a price someone else is willing to pay.
>          Demand continues to be met, probably with slowly increasing prices.
> Phase 3: No one is willing to part for space without excessive sums of 
>          money and no buyer can afford those sums.  Demand is no longer
>          met.

If a buyer is not willing to pay the market price, then they are no 
longer part of "demand" from an economic perspective.  "Excessive" is in 
the eye of the beholder, too.  Supply of and demand for IPv4 addresses 
is elastic, plus there is a (poor) substitute product called IPv6.  A 
free market will establish an floating equilibrium price where supply 
(people willing to sell) and demand (people willing to buy) are always 

Until exhaustion, ARIN will be distorting the market by selling at an 
artificially low price; after that point, we will find out exactly how 
much IP address blocks of various sizes are actually worth -- whether 
the market is white, gray, or black.

>> What you may not see is that supply and demand is always relative to
>> price and never absolute. That is, the concept of "wanting space"
>> depends on "what do I have to give up to get the space" just as the
>> concept of giving up space is contingent on "what benefits do I get (or
>> forego) by giving it up"? if you tell people that the price of a /8 is
>> $30, I guarantee you you will have 5 times more applicants for it than
>> there are /8s. 
> With all due respect, I think you're taking the ivory tower economics
> professor view of the world.  You are 100% correct, but I fear
> you're complicating the economics in a way that's not helping the
> evaluation of the proposal.
> Price and demand are always elastic.  If there was one loaf of bread
> left in the US I have no doubt that Bill Gates or Warren Buffet
> would end up spending billions to get it.  However, the statement
> "the people have no bread" is still accurate.
> There is some threshold at which I think we can all agree "there
> are no more IP addresses available" is a reasonable generalization.
> We might argue over if it is when 50% of the people in line can't
> get any, or 99%, or 99.99999%.  However, much like bread and starving
> people, my feeling is the threshold is lower than you may think.
> No ruler survives 30% of his subjects starving; if the supply of IP
> addresses leaves 30% of the ISP's wanting I suspect most ISP's will
> say "we are out"; even though there is some long tail of the market
> still to play out.

A consumable item makes a poor analogy.  Better would be land.  The US 
is effectively "out of land" because there is no more to be had for 
free, but anyone who is willing to pay the market price is able to get 
as much as they want.  If the price climbs, more and more folks are 
willing to part with theirs, so an equilibrium is established and supply 
matches demand.  Of course, prices will change over time as other 
external factors play out, but the equilibrium will always be there.

IPv6 is one important external factor.  Europe was "out of land" in the 
1800s, but a new continent was discovered and land there was given away 
free to anyone who was willing to make the transition.  It wasn't easy, 
but millions of people _did_ make the move, which reduced demand for 
expensive land back in Europe.  Of course, a new equilibrium has now 
been established with people still living in Europe, but in theory IPv6 
will "never run out", which leads to a different end state.

>>> That is where these transfer proposals are doing any good.  What
>>> people care most about when that is happening is price and safety.
>>> They wants systems that insure they pay as little as possible, and
>> I don't think regulating the price of transfers is a legitimate concern
>> of ARIN
> I agree, which is why I have focused on transparency rather than
> regulation.  E-Bay is an interesting example; in most collectable
> markets E-Bay did two things; drove the costs down for most things
> and drove the costs up for truly rare things.  It did this not via
> regulation, but via transparency.
> When a buyer can see there are 10,000 people offering the same
> baseball card prices fall.  No longer are they making an uninformed
> decision about the price sitting in their local shop with a shop
> keeper feeding them a line of BS about how good of an investment
> they are getting.  But also, when someone has the actual one of a
> kind misprinted card they can put it in front of more buyers, driving
> up the price.
> That's why my focus is on price transparency.  Early in phase 2
> (above) this will drive the price down, and help prevent people
> from being swindled.
> Neither 2008-2 nor 2008-6 had any way to enforce price transparency.
> The value of all transactions could be NDA'ed to the two parties
> involved.  This is the opposite, the value of all transactions is
> published; no regulation, just transparency.

If ARIN were to operate a listing service, wouldn't that become a 
non-issue?  You can see what the asking (or bidding) prices are, how 
they change over time, and when sales take place.  Even if the final 
price isn't reported, if there are more than a handful of participants 
you can guess what the price was based on other information.  The 
natural greed of both buyers and sellers will keep the highest bid and 
lowest offer fairly close together, and any arms-length transactions 
will occur somewhere in that spread.

> Here's my own $0.02.  People are worried about crooks, and speculators,
> and hoarding, and all the potential problems of a market.  2008-2
> had many provisions to regulate the market to help prevent those
> problems.  However, ARIN had no real mechanism to enforce those
> regulations which means they could be freely ignored.

ARIN _can_ enforce regulations, in a way, by refusing to process a 
transfer request that does not comply with policy.  Of course, 
regulations don't apply to the black market, so if ARIN wants to have 
_any_ say in the market that _will_ develop, we need to get as high a 
percentage of transactions into the white market as possible.

> If you agree with the scheme so far, there's only one problem left
> and it is the problem you've zeroed in on.  Pricing.  What scheme
> do we use to set the price?  In terms of transparency and predictability
> I think having the transactions known is good; but quite frankly
> E-Bay could do that just as well.  It's not a feature ARIN is
> necessarily uniquely qualified for; however by centralizing it I
> think there is some good of having a single place to look.

Any attempt to fix a particular price will fail, as demonstrated in 
command economies all over the world.  Either it's too low and you can't 
meet demand, or it's too high and the market is flooded with excess 
supply.  So, if we want anything approaching efficiency, we're left with 
a floating price that will be less predictable but properly match up 
supply and demand.

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