Price Transparency and Price Discriminating Noisy Rational Expectations Equilibria

I introduce price opacity and market power into the noisy rational expectations equilibrium (NREE) of Grossman and Stiglitz (1980). I characterize the resulting price discriminating noisy rational expectations equilibrium (PD-NREE) and derive analytic expressions for price levels, sensitivity to information, and informativeness. The intermediation mechanism reduces migration of information from informed traders into uninformed trader prices. Price transparency and competition increase the responsiveness of prices to information, but also result in higher average prices for informed market participants. I conclude by mapping the PD-NREE and NREE models to the corporate bond market to evaluate price discovery and distributional consequences of a transaction price dissemination system (TRACE).