Pricing and efficiency in the market for IP addresses
By: Benjamin Edelman, Michael Schwarz
Contributors: Schwarz, Michael, 1970-; Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 12-020; Working paper (Harvard Business School) -- 12-020
Publisher: Harvard Business School
Published: 2012
Place of publication: Boston]
Language: eng
Number of pages: 20
Description: We consider market rules for the transfer of IP addresses, numeric identifiers required by all computers connected to the Internet. Excessive fragmentation of IP address blocks causes growth in the Internet's routing table, which is socially costly, so an IP address market should discourage subdividing IP address blocks more than necessary. Yet IP address transfer rules also need to facilitate purchase by the networks that need the addresses most, from the networks who value them least. We propose a market rule that avoids excessive fragmentation while almost achieving social efficiency, and we argue that implementation of this rule is feasible despite the limited powers of central authorities. We also offer a framework for the price trajectory of IP addresses. In a world without uncertainty, the unit price of IP addresses is constant until all addresses are in use and begins decreases at that time. With uncertainty, the price before that time is a martingale, and the price trajectory afterwards is a supermartingale. Finally, we explore the role of rental markets in sharing information about address value and assuring allocative efficiency.
Notes: "Revised November 2012" -- Publisher's website.

Includes bibliographical references (page 20).