Price Discrimination
TLDR
- Standard domains are not vulnerable to price discrimination.
- Price discrimination is allowed for premium domains.
- Fee classes used for price discrimination are opaque to registrants.
- Phased rollouts add to the risk of price discrimination.
- Price discrimination encourages fee class bloat (aka re-tiering).
Overview
Price discrimination is a tactic where customers are charged differing prices for identical services. To accomplish this, a seller must have a way of determining which customers are willing to pay more and how much more they are willing to pay.
Registry Premium Domains Only
Only registry premium domains are vulnerable to the price discrimination tactics described below.
Standard Domains
Domains in the standard fee class benefit from identical pricing protections. The renewal price for these domains can be increased, but must be increased for everyone at the same time. That means standard domains are not vulnerable to significant price discrimination.
Premium Domains
For registrants, the worst case scenario is that premium domains are vulnerable to individualized price discrimination. The best-case scenario is that premium domains might need to have identical renewal prices for each fee class which makes them vulnerable to cohort-based price discrimination.
In 2022 Domain Name Wire asked ICANN if registries are allowed to move premium domains between fee classes and received the following response (emphasis added, truncated):
ICANN circa 2022
In the hypothetical scenario you presented (“[…] this name has been singled out to move to another of the premium pricing tiers while other names haven’t.”), one of the things that comes to mind is whether or not the RO’s approach would be consistent with the requirement regarding maintaining uniform pricing. … However, … it would be necessary to review all details … These details include prices at the time of the renewal and whether the exceptions stated in Article 2.10 (c) apply to the case at hand – whether the registrant agreed to a higher renewal price at the time of registration
The base registry agreement does not mention premium domains, fee classes (aka tiers), or anything related to the price discrimination strategies used with premium domains. The exceptions are broad and registrants of premium domains very likely have no price protections because price protections are being waived at the time of initial registration.
Even if moving domains between non-standard fee classes is forbidden, there is no limit to the number of fee classes that can be created by registries and registrants of premium domains are still vulnerable to cohort-based price discrimination.
Opaque Fee Classes
In the above hypothetical scenario where premium domains are moved between fee classes, whether it is allowed or forbidden may be moot. Non-standard fee classes are not exposed to registrants, so it would be extremely difficult for a registrant to prove the fee class history of their domain.
Phased Rollouts
Sometimes registries will make premium domains available in a phased rollout where they are priced high initially and have the price reduced gradually over a short period of time. Participating in a phased rollout has the risk of self-selecting for future price discrimination because registrants participating in the early phases can be assumed to be the least price sensitive.
Additionally, since nothing limits the number of fee classes a registry can create, each phase in a phased rollout may have a different fee class. This is important to understand if the base registry agreement is interpreted to give registrants the best-case scenario described above. This makes it possible for registries to group similar registrants into the same fee class which enables cohort-based price discrimination. Even worse, nothing forbids the creation of extremely narrow, or individual fee classes. For example, there are not any rules against a registry creating a unique fee class of cat for the domain cat.invalid.
That makes registrants who participate in the early phases of phased rollouts a great target for price increases. Unless the registries contractually guarantee a limit on price increases, registrants who self-select into valuable fee classes should assume they are increasing their risk of being subjected to higher renewal prices in the future.
Fee Class Bloat
Fee class bloat, sometimes referred to as re-tiering, can occur if a registry continuously adds premium fee classes in an attempt to optimize price discrimination. Having an undefined, unlimited number of fee classes places an unreasonable burden on registrars. While registries only need to consider the fee classes for themselves, registrars need to manage the fee classes for hundreds of registries.
The primary reason for this is to enable more targeted price discrimination. By grouping similar, high-value domains together, a registry can apply price increases to that specific cohort in the future. This practice is opaque to registrants as they have no visibility into these behind-the-scenes classifications.
This also places an unreasonable burden on registrars, who must manage the complex and constantly changing fee class lists from hundreds of different registries. If registrars decide to stop supporting TLDs that engage in excessive re-tiering, the value and utility of those TLDs would be diminished for existing registrants.