Corner a Market - Explained
What is Cornering a Market?
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Table of ContentsWhat is Corner a Market?How Does Cornering a Market Work?Illegal Cornering of the Market
What is Corner a Market?
The term, to corner a market simply means to acquire a satisfiable number of shares of a specific type of security, like those of a company in a niche industry. It can also refer to the ability to hold a security or a substantial portion of a significant market to the extent that one can manipulate the market of that commodity at will. Generally, the term to corner a market simply means that a security or commodity market has been pushed into a position where it is unable to attract new buyers and sellers. For an investor to corner a market, hell need to have an enormous amount of capital, one that is high enough to command up to 70% of the market. In some cases, having up to 90% of an industry is the golden standard for cornering that industry, like in the case of the mobile phones industry, or the OS sector.
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How Does Cornering a Market Work?
There are different legal means of cornering a market. In such conduct, a company which is said to have successfully cornered the market will have a significant competitive advantage in such industry compared to other firms in the same industry. Even when this action is legal, the Department of Justices Antitrust Division most times tend to scrutinize some of the companies that happen to have large market shares, especially when there are complaints from competitors. A major example of such action was the scrutinization of Microsoft due to its huge share of the operating system market for computers. Cornering the market in stocks, forex exchange or commodities, and bond markets might not yield the required result which an entity desires since these markets are monitored by the Securities and Exchange Commission and they're always on the lookout for illegal trading behaviors.
Illegal Cornering of the Market
We stated earlier that there are means of cornering the market legally, and thus, if there is a legal method, then an illegal conduct must exist. When one corners a market illegally, he wishes to keep that market unattractive to new buyers and sellers, thus eliminating the chance of competition, which is necessary for the continuation of a market. When such action occurs, different regulations will need to implemented to correct it. A common means through which speculators (traders and investors) try to corner a market is by buying and holding large amounts of visible assets or properties. A popular example of such was that of the silver market in the 1970s and the early 1980s. At that time, the Hunt Brothers (they were three in number) tried to hoard as much silver as possible with the intention of cornering the market and driving up the price in their favor. However, after 10 years, the attempt proved to be futile, as they no longer had any other place to borrow money for buying hoarding more silver. Thus, the brothers gave up their shares of silver which in turn caused the price of silver to fall considerably, as most sellers and buyers had already found the commodity unattractive and left the market, thus leaving the Hunt Brothers with the majority shares of the market. The reason for the fall was because the Hunt Brothers were unable to buy more shares of silver, and since they were the market movers of that commodity, lack of actions on their part will negatively affect the commodity. It is also important to note that many companies and other entities that tried to corner the market in the 1990s also failed to achieve their goals.