Pricing and Efficiency in the Market for IP Addresses

39 Pages Posted: 27 Sep 2011 Last revised: 7 Aug 2015

See all articles by Benjamin G. Edelman

Benjamin G. Edelman

Harvard University - HBS Negotiations, Organizations and Markets Unit

Michael Schwarz

Yahoo! - Yahoo! Research Labs; National Bureau of Economic Research (NBER)

Date Written: April 15, 2014

Abstract

We consider market rules for transferring IP addresses, numeric identifiers required by all computers connected to the Internet. Transfers usefully move resources from lowest to highest-valuation networks, but transfers tend to cause socially costly growth in the Internet's routing table. We propose a market rule that avoids excessive trading and comes close to achieving social efficiency. We argue that this rule is feasible despite the limited powers of central authorities. We also offer a framework for reasoning about future prices of IP addresses, then explore the role of rentals in sharing information about the value of IP address and assuring allocative efficiency.

Keywords: market design, externalities, Internet, intermediaries

JEL Classification: D02, D04, D47, L86

Suggested Citation

Edelman, Benjamin G. and Schwarz, Michael, Pricing and Efficiency in the Market for IP Addresses (April 15, 2014). American Economic Journal: Microeconomics, Forthcoming, Harvard Business School, Harvard Business School Negotiation, Organizations and Markets Unit, Research Paper Series, Available at SSRN: https://ssrn.com/abstract=1934217 or http://dx.doi.org/10.2139/ssrn.1934217

Benjamin G. Edelman (Contact Author)

Harvard University - HBS Negotiations, Organizations and Markets Unit ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://people.hbs.edu/bedelman

Michael Schwarz

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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