In fact, they are run in the style shown by the second diagram. The Mythical Man-Month by Fred Brooks. It is remarkably similar, in its basic philosophy, to the open source method that Raymond and Torvalds used. Interestingly, the book even contains a picture of a cathedral and relates it to this style of development. A real bazaar software development method would proceed as follows.
Someone creates a minimal working version of the software.
The originator releases the working program, a description of how to use it, and all the source code to an appropriate forum such as a newsgroup or public web site. From this point forward, the originator becomes just another member of the user community, with no special status. Anyone may download the program and source, try it out, look for bugs, and suggest fixes and enhancements. These ideas are communicated to the entire user community through the forum. Anyone at any time, or multiple people at the same time, may decide to create a new version of the program.