Article | American Economic Journal: Microeconomics | Forthcoming

Pricing and Efficiency in the Market for IP Addresses

by Benjamin Edelman and Michael Schwarz

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 and 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; Market Design; Internet; Web Services Industry; Telecommunications Industry;

Citation:

Edelman, Benjamin, and Michael Schwarz. "Pricing and Efficiency in the Market for IP Addresses." American Economic Journal: Microeconomics (forthcoming).