To “Corner A Market” means to buy enough shares of a specific security type to control its price, or the position of a commodity firm. This term means that the market is firmly anchored and cannot move to find buyers or sellers. To be able to control a market, an investor must have deep pockets. This means that they need to acquire significant physical assets. This could also refer to acquiring a significant share of the economic activity in a specific area. One could say that a phone company with 90% market share is considered to be the dominant player in the wireless market.
Understanding “Corner A Market”
Legal means can be used to control a market by large institutions. The company that dominates a market is likely to have a substantial competitive advantage over other companies in the same sector. A company with a high market share may be subject to scrutiny by the Department of Justice’s Antitrust Section, especially if other companies complain.
The Securities and Exchange Commission and Commodity Futures Trading Commission are responsible for regulating and monitoring the commodities and securities markets. They also attempt to prosecute and prevent illegal trading.
Illegally Cornering the Market
Most often, the notion of monopolizing the market is linked to illegal activity. Markets are designed to encourage competition and enable price discovery. This can lead to market collapse if someone is able to control the market and limit the number of buyers and sellers.
A way that speculators attempt to control a market is by hoarding large quantities of physical assets. Three brothers, the Hunt Brothers, attempted to hoard silver in order to control the market and increase the price. The brothers couldn’t borrow more money to buy silver, so the hoarding failed after about ten years. The market realized that there was no other silver buyer than the Hunt Brothers, and silver prices crashed. The price of silver was bound to drop if they couldn’t buy it.
Attempts to capture the copper market in 1990s and other markets have also failed.
