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Block sourcing plus

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  • Bru, Lluís
  • Cardona, Daniel
  • Sákovics, József

Abstract

We study how a buyer unable to (directly) price discriminate should satisfy his demand for a divisible good, produced with increasing marginal cost. As expected, we find that dynamic pricing cannot, while auctioning contracts for lots (block sourcing) need not, lead to a higher buyer surplus than setting a price (classical monopsony). However, we show that the optimal combination of block sourcing with setting a price for the residual supply is always strictly superior. Thus, we provide a rationale for two-stage contracting even in the absence of uncertainty.

Suggested Citation

  • Bru, Lluís & Cardona, Daniel & Sákovics, József, 2023. "Block sourcing plus," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1130-1140.
    • Handle: RePEc:eee:ejores:v:305:y:2023:i:3:p:1130-1140
    DOI: 10.1016/j.ejor.2022.06.039
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    References listed on IDEAS

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    More about this item

    Keywords

    Supply chain management; Multi-sourcing; Split-award auction; Two-stage procurement;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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