Concept
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One of the underlying principles of market systems is that there must be an agreed-upon value attributed to a good or service. Price determination and price discovery refer to two processes according to which such a value may be set.
Price determination refers to the broader market price of a security, good, service or other instrument that is determined by the general level of what buyers are willing to pay and what sellers are willing to earn. This is affected by the general demand vs supply for the instrument.
Price discovery is the more specific agreement between buyer and seller in relation to the market context at the time of the trade. The instrument may be in high demand, or in excess supply. It may be of high quality in relation to its counterparts, or it may be of poor quality. These and other factors have an effect on the price of the specific instrument in question.
Think, for example, of how you would sell a car. First, you might establish the price by determining what other similar cars are sold for. Then, once a buyer has shown interest, you and they would determine a price based onthe specifics of the car.