Living Economics

Squatters' Rights
Squatters move in when cost of accessing and hoarding scarce resources are low. They profit from charging others for the use of hoarded resources.

When the cost of accessing and hoarding scarce resources is low, they attract squatters who would claim the scarce resources and resell them to those who really need them at a handsome profit. The problem of squatting is that it defeats the purpose of lowering access cost to intended users. We will look at 3 examples to illustrate the ingenuity of squatters.

888 Toll-free Exchange

Many businesses depend on easy-to-remember 800 toll-free numbers to attract customers. Numbers such as 1-800-FLOWERS are extremely valuable assets equivalent to protected trademarks. In March 1996, however, the supply of precious 800 numbers ran out. The FCC then made available toll-free numbers with an 888 exchange. Normally, customers can request specific toll-free numbers from their phone company for free. But when companies applied for them, many found third-party brokers already had taken the best. Brokers offered them to interested companies for thousands of dollars plus royalties. Brokers have strong bargaining power because companies who own well-known 800 numbers naturally want to own their 888 equivalents. And the success of new businesses depends on having easy-to-remember 888 numbers.

Stockpiling and reselling of toll-free numbers are, of course, illegal. But brokers have not strictly violated the law because the hoarded numbers are being used to deliver recorded sales pitches and they are leased instead of sold outright.

Cybersquatting

Access to the open pasture of the internet world depends on internet addresses or domain names, such as AMAZON.COM. To encourage wide access to this wild world of free information, users have been able to legally register and hold onto domain names at very low cost using recognized real-world trademarks not owned by them. Thus, a new business of cybersquatting has emerged from nowhere almost overnight. This business makes sense as easy-to-remember domain names have become valuable calling cards in the blooming world of e-commerce. The object is to register potentially desirable domain names for the sole purpose of reselling them at a handsome profit.

Surprisingly, until recently a private US-based company, Network Solutions, has enjoyed a monopoly on net name registration since it won a US government contract in 1992. Domain names are handed out on a first-come, first-served, no-question-asked basis for a modest fee.

This monopoly has ended with the establishment of the Internet Corporation for Assigned Names and Numbers(ICANN) in 1999 and some rules against abusive registration have been announced.

References:
  • Business Week. 5/27/1996. "For a Good Number, Dial 1-888-gouge-me."
  • Toronto Star. 8/20/1998. "Net Names a New Commodity."
  • Financial Times. 5/4/1999. "Trademark Proposals Target Cybersquatters."
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