In the current global financial turmoil, more transparency is needed, not less, say Singapore Management University professor of accounting Andrew Lee, and accounting lecturer Lim Chu Yeong. Financial markets have long been regarded as the paragon of perfect competition.
“When there are many buyers and sellers and there is an adequate flow of information, the market price of an asset reflects the collective wisdom of all participants and represents fairly its intrinsic value,” said Lee. “Of course, markets can still function reasonably well even if they are not perfect; they just need to be sufficiently competitive.”
He pointed out, however, that when critical conditions for perfect competition are badly breached, markets break down. Buyers and sellers become extremely hesitant to trade or disappear from the market completely, prices fluctuate outrageously and they no longer reflect fairly intrinsic values. Economists term this phenomenon a market failure.
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