Pay-as-you-bid System for COEs
Ministry of TransportSpeakers
Summary
This question concerns the potential implementation of a pay-as-you-bid system for Certificates of Entitlement (COEs) and the price differences between the highest and winning bids. Mr Zainal Sapari requested data on average highest and winning bids across all categories and the considerations for not adopting a pay-as-you-bid model. Minister for Transport Khaw Boon Wan provided the requested averages, noting that most successful bids are within 10% of the final strike price. He stated that a pay-as-you-bid system would not necessarily lower prices, as they are driven by supply and demand, and might encourage market gaming. The Minister concluded that the current system is fairer to ordinary buyers because it encourages bidding at one's true valuation rather than trying to out-guess the market.
Transcript
94 Mr Zainal Sapari asked the Minister for Transport (a) what is the average price of the highest COE bid for vehicles in all the categories in the last three bidding exercises; (b) what is the average price of the winning COE bid in the same period; and (c) what are the considerations in not implementing a pay-as-you-bid system for COEs.
Mr Khaw Boon Wan: The average price of the winning Certificate of Entitlement (COE) bid in the last three bidding exercises was $52,601 for Category A, $57,167 for Category B, $48,694 for Category C, $6,173 for Category D, and $57,235 for Category E. The average of the highest COE bid, after removing outlier bids which were likely due to errors, was $64,296 for Category A, $79,629 for Category B, $60,967 for Category C, $10,000 for Category D, and $69,130 for Category E. This comparison, however, is not very meaningful. The vast majority of successful bids are clustered within 10% of the final strike price.
The idea of a pay-as-you-bid system was last reviewed in 2013. Economists, such as Nanyang Technological University professor Ng Yew Kwang, advised that a pay-as-you-bid system may not necessarily result in lower COE prices as clearing prices would still be determined by demand and supply. In addition, they pointed that a pay-as-you-bid system encourages gaming, in that bidders will be constantly adjusting their bids in accordance with how they think others will bid so that they do not end up over-paying. Market insiders will have a clear advantage.
In contrast, the current COE auction system encourages a bidder to submit a single bid at the true price that he is willing to pay. This is simpler and fairer to car buyers who are less familiar with the market.