Gaming Agency Markets

Abstract

Markets can be modeled or gamed. A taxonomy of markets, based on the extent to which traders delegate transaction-executing decisions to a principal of the market, is set forth that classifies markets into three types: bazaar, auction market, and agency market. A bazaar is a market wherein traders delegate nothing. An auction market is a market wherein traders on one side, which may be either the buying side or the selling side, delegate to auctioneers the task of fetching the best terms for the items the traders wish to trade. An agency market is a market wherein all traders entrust a single agent or group of collaborating agents with the task of executing trades whenever trading is possible. The agency market enables the greatest volume of transactions to be executed. Procedurally, the agency must choose which transaction to execute if several are possible but mutually exclusive, and at what price the transaction is to be executed if a range of prices is acceptable to both buyer and seller. These choices affect the collective welfare of market participants, market productivity, and computational efficiency. They also may depend on the items being traded, the question of balance, and the practical demands of the implementation. A proof-of-principle implementation in a computer-assisted, transaction-based business gaming simulation is discussed. Its incorporation of the agency market enable the gaming simulation to handle a much greater volume of transactions than would otherwise be practical, without increasing the number of decisions required of participants.