Corner A Market: What it is, How it Works, Legality

What Does "Corner A Market" Mean?

To corner a market means to acquire enough shares of a particular security type, such as those of a firm in a niche industry, or to hold a significant commodity position to be able to manipulate its price. The term implies that the market has been backed into a corner, and there is nowhere for the market to move to find other sellers and buyers. An investor needs deep pockets to be able to corner a market because it means acquiring significant physical assets. It can also mean to accumulate a major share of economic activity in a particular area. A phone company that dominates 90% of the wireless market could be said to have cornered the market.

Understanding "Corner A Market"

Large institutions can often corner a market through legal means. A company that has cornered the market has a significant competitive advantage compared to others operating in the same market. However, any time a company has a large market share, it may be scrutinized by the Department of Justice's Antitrust Division—especially if competitors complain. Indeed, Microsoft faced such a fate because of its large share of the computer operating system market.

When it comes to cornering the market in shares, bonds, foreign exchange or commodities, the Securities and Exchange Commission and Commodity Futures Trading Commission regulate and monitor the securities and commodities markets, and attempt to prevent and prosecute illegal trading behavior.

Cornering the Market Illegally

Most of the time, the idea of cornering the market is associated with illegal activity. Markets are intended to foster competition and allow for competitive price discovery. If someone has cornered a market by limiting the number of willing sellers and buyers, this process breaks down and can require regulatory intervention to restore it.

One way speculators try to corner a market is by hoarding large amounts of physical assets. One of the most famous cases of hoarding occurred in the silver market in the 1970s and early 1980s when three brothers, known as the Hunt Brothers, tried to hoard silver to corner the market and drive up the price. After approximately 10 years the attempt finally failed when the brothers were not able to borrow any more money to continue buying silver. This caused the price of silver to crash when the market realized there were practically no willing silver buyers left apart from the Hunt Brothers. So if they were not able to buy silver, then the price was destined to fall.

Attempts to corner the copper market in the 1990s and other markets over time have also ended without success.