Transparency (market)

In economics, a market is transparent if much is known by many about: What products and services or capital assets are available, market depth (quantity available), what price, and where. Transparency is important since it is one of the theoretical conditions required for a free market to be efficient. Price transparency can, however, lead to higher prices. For example, if it makes sellers reluctant to give steep discounts to certain buyers (e.g. disrupting price dispersion among buyers), or if it facilitates collusion, and price volatility is another concern.^[1] A high degree of market transparency can result in disintermediation due to the buyer's increased knowledge of supply pricing.

There are two types of price transparency: 1) I know what price will be charged to me, and 2) I know what price will be charged to you. The two types of price transparency have different implications for differential pricing.^[2] A transparent market should also provide necessary information about quality and other product features,^[3] although quality can be exceedingly difficult to estimate for some goods, such as artworks.^[4]

While the stock market is relatively transparent, hedge funds are notoriously secretive. Researchers in this area have found concerns by hedge funds about the crowding out of their trades through transparency and undesirable effects of incomplete transparency.^[5] Some financial professionals, including Wall Street veteran Jeremy Frommer are pioneering the application of transparency to hedge funds by broadcasting live from trading desks and posting detailed portfolios online.^{[citation needed]}