his article uses data from the London gold market to investigate the nature, T frequency, and causes of rounding in transactions prices. The degree of price resolution-whether prices are quoted to the nearest 5, 10, 25, 50, or 100 centsis not constant, but rather is a function of the amount of information in the market, and the level and variability of the price. This article, therefore, provides further insight into the determination of prices in competitive markets.The fact that transactions actually occur at eighths (stocks) or twentieths (gold), rather than at some nth place decimal, is important from the point of view of the microeconomics of price formation. Economic theory has made much of the optimality of equilibrium prices. However, as Goldman and Beja (1979) point out, economic theory is less informative with regard to the effect of institutional arrangements on the actual functioning of markets. This article addresses one such aspect of a market's microstructure. The implications of the results are that (1) all returns are measured with error and that therefore all empirical work is subject toWe would like to thank

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