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

Published online by Cambridge University Press:  14 March 2025

John D. Hey  and
Daniela Di Cagno
John D. Hey*
Affiliation:
University of York, Department of Economics, York YO1 5DD, UK
Daniela Di Cagno
Affiliation:
LUISS, Viale Pola, 12-00198, Roma Italy
*
email: [email protected]
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Abstract

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.

Keywords

sequential tradeunemploymentdouble auctionscompetitive equilibrium

JEL classification

E24: Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity C92: Laboratory, Group Behavior
Type
Research Article
Information
Experimental Economics , Volume 1 , Issue 1 , June 1998 , pp. 63 - 85
Copyright
Copyright © 1998 Economic Science Association

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