A Simulation on the Evolution of Markets: Call Market, Decentralized and Posted Offer

We apply standard evolutionary dynamics to study of stability of 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. We study the allocation of time among different formats using simulations of a large (evolutionary) dynamic system. Our results show that (i) the final participation of traders in CM is much higher compared to the two other formats, (ii) the PO can coexist with CM, and (iii) DM vanishes against CM in the long run but can survive against PO, depending on the initial participation conditions.