[nostrademons]

Doesn't follow.

Namesquatting, ticket scalping, house flipping, Amazon book reselling, quant trading, etc. are all forms of arbitrage. There exist buyers who are willing to pay significantly more than sellers are willing to accept. Somebody gets to the seller first, buys the good, sits on it, and waits for one of these high-demand buyers to show up, then charges them the maximum that they're willing to pay.

If the seller just raised their prices, there would be no profit for the arbitrager. They would capture all the consumer surplus and deal directly with the buyer. If Gandi charged $1B for a .com domain, nobody's going to namesquat - they'd lose too much on the common English words to make it up from the major corporations.

I suspect a lot of the problem is the extreme power law in how much people are willing to pay for domains. Dropbox.com or Facebook.com is a bargain at $1M for DropBox and Facebook, but nobody is going to pay $1M for their personal homepage, and few local businesses are going to shell out more than a grand for a restaurant domain name. That indicates that perhaps some better pricing system (auctions?) is required. $16.99 is way low for a business domain name though.

[mulmen]

Exactly. Arbitrage will always be appealing in a free marketplace. As the (market) prices continue to go up those of us at the bottom will get pushed out and those with more capital will stay in, until it balances itself at some point.

The problem is that point is far beyond anything that resembles the Internet today. This is why the marketplace is administered by a non-profit for the benefit of the public.