The effects of transaction cost on market transparency when Hotelling market

The relationship between market transparency and transaction cost has not yet been discussed in the previous literature. In this paper we adopt a similar Hotelling market approach and extended Schultz’s demand function in a transaction cost way. From the results of this paper, we formulated two propositions: 1. companies paying higher transaction costs leads to higher market transparency. 2. increasing market transparency leads to lowest prices and lowest profits. From the consumer’s side, the social surplus increased while their transaction cost decreased. This research shows the impact of transaction cost on market transparency. A discussion of the finding, meaningful implications and suggestions for future research are all presented.