Why Domain Registration Price Increases Are Good For Investors

By on June 28, 2010

Many are upset with VeriSign, the organization which manages the .COM and .NET domain space. Annual 7% fee increases for domain registrations have been in effect for awhile now. On July 1st, the registry fee will again increase, jumping from $6.86 to $7.34. It’s from this base price that ICANN accredited registrars then set their registration markup.

I have always had no problem with fee increases. I feel strongly that it somehow increases the bottom-line value of each domain name. Domainers could simply pass on that value by marking up domain sales prices.

I had to put this “gut feeling” that registration price increases may actually be a good thing for the industry to the test. So, I set about browsing a few microeconomics articles on WikiPedia about supply and demand. I wanted to see how the price increase may affect demand for domains.

Price increases generally do have an adverse affect on demand. However, there are a few products and services that do not apply to the normal rules of supply and demand. These goods are known to have a positive price elasticity, meaning that as prices increase so does the demand.

Could a domain name be classified as a Veblen good? These are luxury items that are not easily attainable.  Certain premium .com domains fit that description very well, some could even be considered priceless.

In 1998, I had no real concern paying $75 per year for .com registrations. It was a necessity for a quality web presence and perceived status of any business or personal site.

Today, domain registration costs are relatively low compared to what one would consider a typical Veblen or luxury good, but they have the special characteristic of being 100% unique.

Could it also be that as more people register domain names the overall desire to claim more domains increases? This is known as the bandwagon effect.

I’m no economics expert, so my ideas on the price-demand correlation may be wrong.  I can’t help but feel these fee increases are justified and beneficial to the industry as a whole. What do you think? You’re welcome to leave a comment below with your thoughts on the matter.

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About Mark Fulton

Mark is the Founder of DotSauce Magazine and a full time web developer, domain investor, SEO and online marketing professional residing in North Carolina, USA. Visit MarkFulton.com for information on freelance website development, SEO and consultation services.