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Sequential Markets: An Experimental Investigation of Clower's Dual-Decision Hypothesis

Listed author(s):
  • John Hey


  • Daniela Cagno

Countless experimental studies have shown that markets converge quickly and efficiently to the competitive outcome under many trading institutions, particularly the double auction mechanism. This creates difficulties for Keynesian stories of unemployment creation—which suggest a noncompetitive outcome in an essentially competitive world. Such stories were popular in the late 1960s and 1970s. One of these stories—the dual decision hypothesis of Clower—was seen then as the beginning of a story of unemployment. This article reports the results of an experiment designed to test this hypothesis. Specifically, we set up an experiment in which there are two sequential double-auction markets, in the first of which one good (labour) is traded, after which the second market (goods) is opened and the second good traded. We compare the outcome of our experiment with that of the competitive theory. One general finding is that not enough trade takes place in the two markets. In other words, the usual finding that competitive equilibrium is achieved in double-auction markets is not replicated in this sequential setting. Copyright Economic Science Association 1998

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Article provided by Springer & Economic Science Association in its journal Experimental Economics.

Volume (Year): 1 (1998)
Issue (Month): 1 (June)
Pages: 63-85

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Handle: RePEc:kap:expeco:v:1:y:1998:i:1:p:63-85
DOI: 10.1023/A:1009909900914
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  1. Timothy N. Cason & Daniel Friedman, 1997. "Price Formation in Single Call Markets," Econometrica, Econometric Society, vol. 65(2), pages 311-346, March.
  2. Bosch-Domenech, Antoni & Silvestre, Joaquim, 1997. "Credit Constraints in General Equilibrium: Experimental Results," Economic Journal, Royal Economic Society, vol. 107(444), pages 1445-1464, September.
  3. Goodfellow, Jessica & Plott, Charles R., "undated". "An Experimental Examination of the Simultaneous Determination of Input Prices and Output Prices," Working Papers 691, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Peng Lian & Charles R. Plott, 1998. "General equilibrium, markets, macroeconomics and money in a laboratory experimental environment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(1), pages 123-146.
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