Transparency and Price Formation

Ayca Kaya & Qingmin Liu
We study the role that price transparency plays in determining the efficiency and surplus division in a sequential bargaining model of price formation with symmetric information. Under natural assumptions on type distributions, and for any discount factor, we show that the unobservability of past negotiations leads to lower prices and faster trading. The lack of transparency therefore enhances the "Coasian effect" by fostering efficiency and diverting more of the surplus to the player who possesses...
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