Block sourcing plus

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.