Letters | Coronavirus outbreak: daily auctions could entice mask suppliers to do business with Hong Kong
- A pilot scheme of daily auctions, such as that used for electricity procurement, should be considered, allowing suppliers to name their price through bids. The government can easily pick up the tab
The government should procure masks that are certified to offer a minimum standard of protection from a pool of at least 10 pre-qualified suppliers, preferably affiliated with large listed companies to ensure compliance with quality and delivery commitments.
It should institute a daily auction with an initial target of 1 million masks, allowing pre-qualified suppliers to submit binding bids between midnight and 4pm, for delivery within seven days. Each bid’s electronic submission should be a pro forma spreadsheet, stating the supplier’s identity, a bid quantity not fewer than 100,000, and a willing-to-accept price per mask.
A supplier can make multiple bids; the larger the quantity, the higher the price. For example, a supplier may make two bids: one for 100,000 masks at HK$3 each and another for 500,000 at HK$5 each, yielding a total quantity of 600,000.
What would the market-clearing price be? The government ranks all bids received by 4pm according to price to fulfil the 1 million target. All winning bids receive the market-clearing price set by the last accepted bid’s willing-to-accept price. If the last accepted bid’s price is HK$5 per mask, all other winning bids receive HK$5 per mask as their market-clearing price.
A supplier that fails to deliver should pay damage equal to 150 per cent of the replacement cost based on the market-clearing price.