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Evolution of markets: a simulation with centralized, decentralized and posted offer formats

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Listed:
  • Olga A. Rud

    (Bates College)

  • Jean Paul Rabanal

    (Bates College)

Abstract

We apply standard evolutionary dynamics to study trader participation in three competing market formats —call market (CM), posted offer (PO) and decentralized market (DM). In our framework, heterogeneous buyers and sellers seek to transact a homogeneous good, which can be done by allocating their time among three different market formats. Our results show that (i) the final participation of traders in the CM is much higher, (ii) the PO can coexist with the CM, (iii) the DM unravels when competing against CM and (iv) the DM can coexist with the PO, depending on the initial participation conditions. Thus, we demonstrate that agent-based micro-simulations coupled with replication dynamics can reproduce most of the previously known theoretical results and have the potential to investigate other commonly used hybrid auction protocols.

Suggested Citation

  • Olga A. Rud & Jean Paul Rabanal, 2018. "Evolution of markets: a simulation with centralized, decentralized and posted offer formats," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 667-689, August.
    • Handle: RePEc:spr:joevec:v:28:y:2018:i:3:d:10.1007_s00191-016-0488-y
    DOI: 10.1007/s00191-016-0488-y
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    Cited by:

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    2. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2022. "Do traders learn to select efficient market institutions?," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 203-228, February.

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    More about this item

    Keywords

    Centralized markets; Decentralized markets; Decentralized bargaining; Market design; Market formation; Evolutionary dynamics;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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