I am a postdoctoral researcher in economics at the Catholic University of Milan. My research is in applied microeconomics, especially industrial organization and behaviour. I'm interested in novel pricing strategies that are becoming relevant with the growth of digital markets - for example novelty auctions, such as the Penny Auction, where I show that behavioural economics is needed to make sense of the rich data we observe. Moreover, I study the strategic and regulatory implications of price discrimination based on consumer's past behaviour. Furthermore, I have a new line of research on international dimensions of IO (More about my research; publications)
My teaching interests are in microeconomics and its applications (IO, contracts, political economy) and competition policy. I have experience as a teaching assistant (Undergraduate, Masters and PhD level) and lecturer (Masters). More information
Of Pennies and Prospects: Understanding Behaviour in Penny Auctions studies “penny auctions”, a novel selling mechanism which combines an auction with elements of a lottery. Using a large dataset gathered online, I show that penny auction profitability - while high on average - is negative for low-value goods. Early bids have lower expected return and low bid increments are associated with greater profits. I develop a prospect theory model of penny auction bidding and show that it replicates all these stylised facts; parameter estimates are in line with the literature. This adds further evidence on the usefulness of prospect theory in providing a descriptive theory of behaviour under risk. Moreover, I show that prospect theory outperforms the rationalistic alternative hypothesis of risk-loving bidders. Download from SSRN
In subscription markets, firms observe the identities of their consumers. This allows them to use rich price discrimination strategies, such as „Enjoy a 50% discount - only when switching from a competitor“. As electronic commerce grows, the size of such subscription markets increases rapidly, creating a need to better understand the consequences of such pricing strategies on market competition.
In my paper, Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare, I study switching offers – as discussed in the example above – in a setting where a large established firm competes against a small (or medium) firm. In this setting, I show that price discrimination of the large firm has surprisingly negative consequences – not only on the small firm, as one might expect, but also on the level of industry profits and consumer welfare. The reason for this important cautionary finding is that, compared to a symmetric setting, the pro-competitive price reducing effects of price discrimination are weakened in an asymmetric setting. Download from SSRN
Paying Customers to Stay: Retention Pricing and Market Competition looks at defensive pricing strategies against switching offers. In particular, a firm may find out when a consumer has initited a switch to a competitor, and offer a – potentially reduced – retention price to keep the client. Extending the canonical model of history-based price discrimination, I show that allowing retention offers generally lead to more competitive markets and improves consumer welfare. This is contrasted with a regulatory debate on bans against retention pricing. My results strongly advise against such a ban. The paper is currently under revision.
The Silent Success of Customs Unions (with Arevik Gnutzmann-Mkrtchyan) uses a classic model of industrial organization, the Brander-Krugman model, to further our understanding of customs unions. Customs Unions are the silent success story of regional integration, now surpassing Free Trade Areas in trade volumes and prevalence among neighbouring countries, the quintessential natural trading partners. Yet their importance has often been concealed from the literature because CUs are few in number compared to other agreements. We show that the standard regionalism model implies that CUs dominate all other PTAs in political viability even with asymmetric production - hence FTAs may turn into CUs with higher tariffs, challenging the view that endogenous trade agreements necessarily benefit third countries. Moreover, Customs Unions can be an engine for development: even when governments are politically biased, we demonstrate that CU maximises social welfare in member states among the alternative agreements as long as trade with the rest of the world does not cease entirely. Download from SSRN
In spring 2012, I was a visting fellow at the OSCE Academy in Bishkek, Kyrgyzstan. During my stay, I taught an introductory game theory, which was a compulsory component of the MA in Economic Governance.
The fellowship offered me the opportunity to design the course syllabus, including the choice of a combination of a textbooks and additional handouts, hold lectures and grade student assignments and exams.
In autumn 2010, I was teaching assistant for Fernando Vega-Redondo's PhD course Microeconomics 2: Game Theory. The course is a compulsory component of the Economics PhD programme.
My duties included giving seminar classes, holding office hours to address questions of students, and grading problem sets.
The incidence of money laundering, and the zeal with which international anti-money laundering (AML) policy is pursued, varies significantly from country to country, region to region. There are, however, quite substantial social costs associated with a policy of toleration, and this begs the question as to why such a variance should exist. In this paper we claim that, due to the globalisation of crime, if a single country should break the “chain of accountability”, then it will provide a safe haven for criminals and attract the total financial proceeds of crime. Because smaller economies are best able to insulate themselves from the costs of crime, we argue that smaller countries bear only a tiny share of the total costs relative to the potential benefits of investment that money laundering offers, and so have a higher incentive to tolerate the practice compared to their larger neighbours. As such, we claim that the existence of a money laundering market is due to a policy of AML ‘defection’, and that the degree of ‘defection’ depends largely on the size of the country. We present a simple model of policy competition which formalises this intuition, and conclude by exploring a number of policy recommendations which flow from this
International Review of Law and Economics, Volume 30, Number 3, pp. 244-252 (2010)
When joining a social network, the already well-connected often make for especially attractive partners because they can facilitate links to other network members. However, the effect is potentially weakened by increasing redundancy of contacts with network size. We consider the trade-off between these two factors in a dataset of the Cambridge High-Tech Cluster and compare results with the county of Cambridgeshire as a whole. As expected, network effects are stronger in the former, but in both datasets, redundancy does not offset the benefits of reach in attracting new partners.
Computational Economics, Volume 32, Number 4, pp. 407-413 (2008)
A short report on a software project I worked on in my high school
Spektrum der Wissenschaft, May 2003, pp. 106-108 (German Edition of Scientific American)
Download the more detailed PDF version here
Please contact me with any enquiries, or just to talk about research - my email address is hinnerk dot gnutzmann at eui dot eu