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Fragmentation in trader preferences among multiple markets: market coexistence versus single market dominance

Research output: Contribution to journalArticlepeer-review

Original languageEnglish
Article number202233
JournalRoyal Society open science
Issue number8
Early online date18 Aug 2021
Accepted/In press2 Aug 2021
E-pub ahead of print18 Aug 2021
PublishedAug 2021

Bibliographical note

Funding Information: Data accessibility. Data available from the Dryad Digital Repository: [29]. Competing interests. We declare we have no competing interests. Authors’ contributions. R.N., A.A. and P.S. conceptualized the model and formalized the mathematical framework. R.N. implemented the numerical simulations and prepared the figures. R.N., A.A. and P.S. analysed the results and discussed their implications. All authors wrote the manuscript and gave final approval for publication. Funding. No funding has been received for this article. Acknowledgements. The authors are grateful to Peter McBurney for useful discussions. P.S. acknowledges the stimulating research environment provided by the EPSRC Centre for Doctoral Training in Cross-Disciplinary Approaches to NonEquilibrium Systems (CANES, EP/L015854/1). A.A. acknowledges the funding provided by the Institute of Physics Belgrade, through the grant by the Ministry of Education, Science, and Technological Development of the Republic of Serbia. Publisher Copyright: © 2021 The Authors. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.

King's Authors


Technological advancement has led to an increase in the number and type of trading venues and a diversification of goods traded. These changes have re-emphasized the importance of understanding the effects of market competition: does proliferation of trading venues and increased competition lead to dominance of a single market or coexistence of multiple markets? In this paper, we address these questions in a stylized model of zero-intelligence traders who make repeated decisions at which of three available markets to trade. We analyse the model numerically and analytically and find that the traders' decision parameters - memory length and how strongly decisions are based on past success - make the key difference between consolidated and fragmented steady states of the population of traders. All three markets coexist with equal shares of traders only when either learning is too weak and traders choose randomly, or when markets are identical. In the latter case, the population of traders fragments across the markets. With different markets, we note that market dominance is the more typical scenario. Overall we show that, contrary to previous research emphasizing the role of traders' heterogeneity, market coexistence can emerge simply as a consequence of co-adaptation of an initially homogeneous population of traders.

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