[address-policy-wg] RE: The price of address space

On 22 Jul 2009, at 22:50, <michael.dillon at bt.com>  
<michael.dillon at bt.com> wrote:

> 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?

I have no idea. And neither does anyone else. As I said earlier there  
are too many unknowns and assumptions to make any meaningful  
predictions here. If all other parameters remained unchanged from  
today, it would be reasonable to expect the going rate for that /20  
will be higher in a post run-out world. But the parameters will almost  
certainly be different by then. Any market in IPv4 could have a glut  
of ERX space depressing prices, IPv6 may be more attractive because  
the world's CPE and routers implement it, NAT is cheaper/better then  
than it is today, X.25 makes a comeback, the Internet's Next Big Thing  
is IPv6-only, RIR transfer policies change, ISPs and telcos dispose of  
zillions of unwanted IPv4 space because they've switched to IPv6, etc,  
etc. And if/when there is a mass uptake of IPv6, IPv4 space will  
become as valuable as VHS tape: impossible to even give away.

All I'd be prepared to predict is that /20 in a post run-out world  
could be worth somewhere between zero and a few billion dollars. I'm  
not even sure what the margin of error on that estimate might be.

>> 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.

IIUC "equilibrium" has a specific meaning in economics: when buyers  
and sellers agree on a price. This is independent of the availability  
of what's being traded. If there's a glut of some commodity and  
nobody's buying, the price is too high. The same holds if the  
commodity is scarce and no-one's buying. Buyers are of course usually  
prepared to pay more for something that's in short supply. That  
doesn't mean they will pay the seller's asking price regardless. Or  
that the price of a scarce resource can only increase: how much is a  
LaserDisc player worth today?

> 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.

That might hold for some conditions in a mature market. I'm doubtful  
it applies to something as immature and unstable as today's barely  
established trading in IPv4 space. If we can even call this "trading".  
That activity doesn't (yet) have the same roles, characteristics and  
legal frameworks found in (say) a commodities exchange or futures  
market.

> 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?

I don't accept your starting premise, but let's play along. Apart from  
the attention of competition authorities, it would be a very, very  
risky business strategy to try and corner the world's IPv4 space. For  
one thing that empire could be eliminated overnight by the  
availability of "free" IPv6 addresses, particularly if the cost of  
deploying IPv6 was less than buying IPv4 from the monopolist who  
gobbled up the v4 space. And if the price of this vendor's NAT  
solutions were artificially high to capitalise on the distorted  
expense of IPv4, that leaves plenty of room for their competitors to  
undercut them.

> 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 unwise to assume that will always be the case. Especially  
when the availability of IPv4 gets the attention of regulators and  
politicians. Or if the RIRs have some sort of involvement in a market  
in address space: a clearing house for transactions or whatever. Once  
an open  market develops, the concept of IP addresses as property will  
follow and that will surely attract attention from governments and  
competition authorities.

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

Given the current state of the financial sector, I expect most of them  
will have McJobs in somwhere like a coffee shop or fast food outlet. :-)

> P.S. My position is that IPv6 is the answer

I agree wholeheartedly. My personal opinion is to leave the IPv4  
policies as they are. Any changes will be like re-arranging the  
deckchairs on the Titanic. And will look bad to the outside world when  
they finally wake up to the imminent exhaustion of IPv4 space. We  
should stop worrying about IPv4 or speculating about what a future  
market in IPv4 might look like. [Though an open question is what the  
role of the RIRs might be in that market.] IMO, it's best to  
concentrate on IPv6 deployment and getting on with that migration.