What is Price Transparency?
Price transparency is the ability to know all of the bid prices, ask prices, and trading quantities for a given stock, good, or service at any point in time.
How Does Price Transparency Work?
For example, NYSE quotes have limited price transparency. They show only the highest bid and the lowest ask prices; they do not reveal all the bids and asks available at the time (or the quantities associated with those hidden bids and asks). Only market specialists know that information.
In other parts of the economy, price transparency (or lack thereof) can promote (or discourage) competition. In the healthcare industry, for example, consumers often have little idea what specific medical procedures or services actually cost, leaving them almost no power to negotiate for better prices. If consumers are not really able to negotiate prices or shop around effectively, competition is inhibited.
Why Does Price Transparency Matter?
Knowing what everyone else is bidding, asking, and trading helps determine the true supply and demand for a security, good, or service -- that is, its true value. When this information is spotty or unavailable, the market is by definition less efficient.