[arin-ppml] The price of address space

michael.dillon at bt.com michael.dillon at bt.com
Wed Jul 22 17:50:03 EDT 2009

> To be serious, I think it's unwise to extrapolate from your 
> anecdote about someone offering a six figure sum for a /20. 

Not at all. In several years of discussion of IP address markets,
this is the first time that I have seen someone put an actual 
dollar value on an address block. Granted, it was an offered
amount that did not result in a sale, but it is the best data
point that I have seen so far.

> For one thing, who could possibly know 
> for sure if the figure you quoted that was offered recently 
> will be the going rate for a /20 after the IPv4 run-out? 

I think that we all realise that in a real market, prices go
up and down with every transaction. So, given that someone is
willing to offer 100,000 USD for a /20 today, when there are
free alternatives at the RIR, what do you think the going rate
will be after the free alternative is gone? 

> If we assume there will be a market in IPv4 after the 
> run-out, we should expect the usual laws of supply and demand 
> will mean there's some sort of price equilibrium in the 
> market.

Equilibrium? When I learned basic economics, scarcity caused
prices to rise. After IPv4 runout, every block sold just makes
IPv4 addresses scarcer which means that there will be no equilibrium,
just increases until nobody can afford to pay the price. I would
expect that to be a stairstep increase because everyone knows that
addresses are scarcer and scarcer as time goes on.

Then the whole thing comes crashing down when IPv6 gathers enough
momentum and people start releasing large amounts of IPv4 addresses.

> Just like 
> any predictions for the prices of shares or exchange rates or 
> commodities N years in the future.

You may not be able to predict exact prices, but you can do pretty good
at predicting minimum and maximum prices relative to a hard currency,
i.e. ounces of gold or barrels of crude, or Big Macs.

> For instance more use of NAT and ALG 
> (if these turn out to be cheaper than buying a /20 or 
> whatever).

How cheap do IPv4 addresses need to be to make it worthwhile for an
equipment vendor to buy up addresses today to drive up the price and
make it worthwhile for the market to buy carrier grade NAT boxes?

> The point I'm making is that it doesn't seem sensible or even 
> possible to predict what these prices might be post run-out. 

We could prohibit 3rd part transfers and only allow returns to
the RIR in which case we can confidently predict that the price
will be zero. In any case, it is very sensible to do these types
of scenario analysis as part of the policymaking process.

> Or to invent policies which 
> somehow influence or control those prices. [That might well 
> have the look and feel of a cartel.]

We have a cartel today and the price is zero. It's been like 
that for many years now and nobody is complaining or investigating
the RIRs.

> It would be an 
> interesting academic exercise for economists to model the 
> impact of various pricing scenarios though I'm not sure how 
> useful that would be in practice. That said, it would be nice 
> to have some sort of idea of the price points where the 
> trade-offs between buying
> IPv4 or using more NAT/ALG or deploying IPv6 start to get fuzzy.

I agree on that. Where are all the economics grad students?

--Michael Dillon

P.S. My position is that IPv6 is the answer and post runout, most
larger ISPs should be able to satisfy growth of IPv4 in one area 
of their business by migrating lower margin services onto pure IPv6
in order to free the IPv4 addresses for the sluggish corporates who
are willing to pay a higher margin for service using legacy technology.
Note that an economist might well consider this to be a market
because money is exchanged in return for IPv4 network services with
IPv4 addresses bundled in.

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