Selling to consumers with endogenous types

For many goods (such as experience goods or addictive goods), consumers preferences may change over time. In this paper, we examine a monopolist s optimal pricing schedule when current consumption can affect a consumer s valuation in the future and valuations are unobservable. We assume that consumers are anonymous, i.e. the monopolist can t observe a consumer s past consumption history. For myopic consumers, the optimal consumption schedule is distorted upwards, involving substantial discounts for low valuation types. This pushes low types into higher valuations, from which rents can be extracted.For forward looking consumers, there may be a further upward distortion of consumption due to a reversal of the adverse selection effect; low valuation consumers now have a strong interest in consumption in order to increase their valuations. Firms will find it profitable to educate consumers and encourage forward looking behavior.

Endogenous price leadership

We consider a linear price setting duopoly game with di®erentiatedproducts and determine endogenously which of the players will lead andwhich will follow. While the follower role is most attractive for each firm, we show that waiting is more risky for the low cost firm so that,consequently, risk dominance considerations, as in Harsanyi and Selten(1988), allow the conclusion that only the high cost firm will choose towait. Hence, the low cost firm will emerge as the endogenous price leader.

Secretion of an endogenous subtilisin by Pichia pastoris strains GS115 and KM71.

The methylotrophic yeast Pichia pastoris is widely used for the expression of heterologous enzymes. While the purity of the desired expression product is of major importance for many applications, we found that recombinant enzymes produced in methanol medium were contaminated by a 37-kDa endogenous yeast protease. This enzyme was completely inhibited by phenylmethanesulfonyl fluoride (PMSF) but not by 1,10-phenanthroline, EDTA, and pepstatin A, suggesting the nature of a serine protease. Its secretion was abolished in P. pastoris strains GS115 and KM71 by specific mutagenesis of a subtilisin gene (SUB2) but not by inactivation of the gene encoding vacuolar proteinase B (PRB). Bioinformatic comparisons of Sub2 protein with subtilisins from other fungal genomes and phylogenetic analyses indicated that this enzyme is not an orthologue of the vacuolar protease cerevisin generally present in yeasts but is more closely related to another putative subtilisin found in a small number of yeast genomes. During growth of P. pastoris, Sub2 was produced as a secreted enzyme at a concentration of 10 microg/ml of culture supernatant after overexpression of the full-length SUB2 gene. During fermentative production of recombinant enzymes in methanol medium, 1 ml of P. pastoris culture supernatant was found to contain approximately 3 ng of Sub2, while the enzyme was not detected during growth in a medium containing glycerol as a carbon source. The mutant strain GS115-sub2 was subsequently used as a host for the production of recombinant proteases without endogenous subtilisin contamination.

Endogenous price leadership

We consider a linear price setting duopoly game with differentiated products and determine endogenously which of the players will lead and which will follow. While the follower role is most attractive for each firm, we show that waiting is more risky for the low cost firm so that, consequently, risk dominance considerations, as in Harsanyi and Selten (1988), allow the conclusion that only the highcost firm will choose to wait. Hence, the low cost firm will emerge as the endogenous price leader.

Country asymmetries, endogenous product choice and the speed of trade liberalization

In a world with two countries which differ in size, we study theimpact of (the speed of) trade liberalization on firms' profitsand total welfare of the countries involved. Firms correctlyanticipate the pace of trade liberalization and take it intoaccount when deciding on their product choices, which areendogenously determined at the beginning of the game. Competitionin the marketplace then occurs either on quantities or on prices.As long as the autarkic phase continues, local firms are nationalmonopolists. When trade liberalization occurs, firms compete in aninternational duopoly. We analyze trade effects by using twodifferent models of product differentiation. Across all thespecifications adopted (and independently of the price v. quantitycompetition hypothesis), total welfare always unambiguously riseswith the speed of trade liberalization: Possible losses by firmsare always outweighed by consumers' gains, which come under theform of lower prices, enlarged variety of higher average qualitiesavailable. The effect on profits depends on the type of industryanalyzed. Two results in particular seem to be worth of mention.With vertical product differentiation and fixed costs of qualityimprovements, the expected size of the market faced by the firmsdetermines the incentive to invest in quality. The longer the periodof autarky, the lower the possibility that the firm from the smallcountry would be producing the high quality and be the leader in theinternational market when it opens. On the contrary, when trade opensimmediately, national markets do not play any role and firms fromdifferent countries have the same opportunity to become the leader.Hence, immediate trade liberalization might be in the interest ofproducers in the small country. In general, the lower the size of thesmall country, the more likely its firm will gain from tradeliberalization. Losses from the small country firm can arise when itis relegated to low quality good production and the domestic marketsize is not very small. With horizontal product differentiation (thehomogeneous good case being a limit case of it when costs ofdifferentiation tend to infinity), investments in differentiationbenefit both firms in equal manner. Firms from the small country do notrun the risk of being relegated to a lower competitive position undertrade. As a result, they would never lose from it. Instead, firms fromthe large country may still incur losses from the opening of trade whenthe market expansion effect is low (i.e. when the country is very largerelative to the other).

Endogenous Stackelberg leadership

We consider a linear quantity setting duopoly game and analyzewhich of the players will commit when both players have the possibility todo so. To that end, we study a 2-stage game in which each player caneither commit to a quantity in stage 1 or wait till stage 2. We show thatcommitting is more risky for the high cost firm and that, consequently,risk dominance considerations, as in Harsanyi and Selten (1988), allowthe conclusion that only the low cost firm will choose to commit.Hence, the low cost firm will emerge as the endogenous Stackelberg leader.

Endogenous policy leads to inefficient risk sharing

We analyze risk sharing and fiscal spending in a two-region model withcomplete markets. Fiscal policy determines tax rates for each state ofnature. When fiscal policy is decentralized, it can be used to affect prices of securities. To manipulate prices to their beneffit, regionschoose pro-cyclical fiscal spending. This leads to incomplete risk sharing,despite the existence of complete markets and the absence of aggregaterisk. When a fiscal union centralizes fiscal policy, securities pricescan no longer be manipulated and complete risk sharing ensues. If regionsare homogeneous, median income residents of both regions prefer the fiscalunion. If they are heterogeneous, the median resident of the rich regionprefers the decentralized setting.

Endogenous constitutions

We present a theory of the choice of alternative democratic constitutions, a majoritarian or a consensual one, in an unequal society. A majoritarian democracy redistributes resources from the collectivity toward relatively few people, and has a relatively small government and low level of taxation. A consensual democracy redistributes resources toward a broader spectrum of social groups but also has a larger government and a higher level of taxation. We show that a consensual system turns out to be preferred by society when ex ante income inequality is relatively low, while a majoritarian system is chosen when income inequality is relatively high. We also obtain that consensual democracies should be expected to be ruled more often by center-left coalitions while the right should have an advantage in majoritarian constitutions. The implications for the relationship between inequality and redistribution are discussed. Historical evidence and a cross-sectional analysis support our results.

Human capital distribution, growth and convergence

This paper studies the dynamic relationship between distribution and endogenous growth in an overlapping generations model with accumulation of human and physical capital. It is shown how human capital can determine a relationship between per capita growth rates and inequality in the distribution of income. Family background effects and spillovers in the transmission of human capital generate a dynamics in which aggregate variables depend not only on the stock, but also on the distribution of human capital. The evolution of this distribution over time is then characterized under different assumptions on private returns and the form of the externality in the technology for humancapital. Conditions for existence, uniqueness and stability of a constant growth equilibrium with a stationary distribution are derived. Increasing returns, idiosyncratic abilities and the possibility of poverty traps are explicitely characterized in a closed form solution of the equilibrium dynamics, showing the role played by technology and preferences parameters.

Ignorance promotes competition: An auction model with endogenous private valuations

We study a situation in which an auctioneer wishes to sell an object toone of N risk-neutral bidders with heterogeneous preferences. Theauctioneer does not know bidders preferences but has private informationabout the characteristics of the ob ject, and must decide how muchinformation to reveal prior to the auction. We show that the auctioneerhas incentives to release less information than would be efficient andthat the amount of information released increases with the level ofcompetition (as measured by the number of bidders). Furthermore, in aperfectly competitive market the auctioneer would provide the efficientlevel of information.

Fat oxidation and adiposity in prepubertal children: exogenous versus endogenous fat utilization.

Fat balance plays an important role in fat mass regulation. The mechanisms by which fat intake and fat oxidation are controlled are poorly understood. In particular, no data are available on the origin, i.e. exogenous (meal intake) or endogenous (adipose tissue lipolysis), of fat oxidized during the postprandial period in children and the proportion between these two components. In this study we tested the hypothesis that there is a relationship between adiposity and the oxidative fate of fat taken with a mixed meal in a group of 15 children with a wide range of fat mass (9-64%). The combination of stable isotope analysis ([13C] enriched fatty acids added to a mixed meal) and indirect calorimetry allowed us to differentiate between the exogenous and endogenous resting fat oxidation rate over the 9-h postprandial period. During the 9 hours of the postprandial period, the children oxidized an amount of fat comparable to that ingested with the meal [26.8 (+/-2.31) g vs. 26.4 (+/-2.3) g, respectively, P = ns]. On average, exogenous fat oxidation [2.99 (+/-3.0) g/9 h] represented 10.8% (+/-0.9) of total fat oxidation. Endogenous fat oxidation, calculated as the difference between total fat oxidation and exogenous fat oxidation, averaged 23.4 (+/-1.9) g/9 h and represented 88.2% (+/-0.9) of total fat oxidation. Endogenous fat oxidation as well as exogenous fat oxidation were highly correlated to total fat oxidation (r = 0.83, P < 0.001; r = 0.84, P < 0.001, respectively). Exogenous fat oxidation expressed as a proportion of total fat oxidation was directly related to fat mass (r = 0.56, P < 0.03), while endogenous fat oxidation expressed as a proportion of total fat oxidation was inversely related (r = -0.57, P < 0.03) to the degree of adiposity. The enhanced exogenous fat oxidation observed when adiposity increases in the dynamic phase of obesity may be viewed as a protective mechanism to prevent further increase in fat mass and hence to maintain fat oxidation at a sufficient rate when the body is exposed to a high amount of dietary fat, as typically encountered in obese children.