Distinguishing between price discovery and price determination is important. The price level for market hogs is determined during any time period by the interaction of the market hog supply and demand.
Price discovery focuses on the price at which individual transactions occur.
Stated another way, price discovery is the process by which buyers and sellers arrive at a price for a particular transaction. Price discovery is uncertain because the two parties in the transaction do not have precise information regarding demand and supply. The less certain participants' knowledge of market supply and demand the more discrepancy the more variability between prices there will be. Price discovery is not a costless activity. Individual buyers and sellers must collect and analyze recent market fundamentals in order to arrive at a discovered price that is reflective of uncertain market conditions.