Cornering a Market: Definition, Legal and Illegal Aspects, and Key Examples

Cornering a market is a term used to describe the act of acquiring a substantial portion of a particular security type or commodity to gain control over its price. It creates a situation where the market is effectively trapped, with limited opportunities for other buyers and sellers to participate. This practice often requires significant financial resources, as it involves amassing substantial physical assets. Moreover, cornering a market can extend to dominating a significant share of economic activity in a specific sector. For instance, a phone company holding a 90% share of the wireless market can be said to have cornered that market.

Large institutions and companies can legally corner a market, giving them a competitive edge in their respective industries. However, such dominance can raise concerns, leading to scrutiny by regulatory authorities like the Department of Justice’s Antitrust Division. For instance, Microsoft faced antitrust actions due to its dominant position in the computer operating system market.

When it comes to cornering markets in securities, bonds, foreign exchange, or commodities, regulatory bodies such as the Securities and Exchange Commission and Commodity Futures Trading Commission play a crucial role in monitoring and regulating these markets. Their objective is to prevent and prosecute illegal trading practices.

Most often, the concept of cornering a market is associated with illegal activities that hinder fair market competition and disrupt competitive price discovery. When individuals or entities limit the number of willing buyers and sellers in a market, it necessitates regulatory intervention to restore market integrity.

One common illegal method used to corner a market is hoarding significant quantities of physical assets. An infamous case of attempted market cornering occurred in the silver market during the 1970s and early 1980s when the Hunt Brothers tried to hoard silver to manipulate its price. Their attempt ultimately failed after approximately a decade, as they couldn’t secure further funds to continue their silver purchases. This resulted in a sharp decline in silver prices.

Similar attempts to corner markets, such as copper in the 1990s, have also ended without success.

Yes, cornering a market can be legal if it is achieved through legitimate means and does not violate antitrust or market manipulation regulations. Large companies often gain dominant market positions legally.

Illegal market cornering can lead to severe consequences, including legal penalties, fines, and damage to an entity’s reputation. It disrupts market fairness and competitive pricing.

Yes, regulatory bodies such as the Securities and Exchange Commission and Commodity Futures Trading Commission have regulations in place to detect and prevent illegal market cornering. They aim to maintain fair and transparent markets.