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What Does It Mean to Corner a Market?

Ray Hawk
Ray Hawk

To "corner a market" means that a corporation or wealthy individual has acquired a dominant position in a particular market so that they can manipulate the value of goods and services in that market. There are generally two arenas where the concept applies. The most obvious is the investment arena with publicly-traded companies, where it is sometimes possible to acquire so many stock shares in a company or industry itself that one entity has almost complete control over the future direction of the industry. A more historical method used to corner a market is the concept of a monopoly, where a firm through legal or manipulative means acquires the majority of market share in an industry. This can be done legally by either having a superior product to that of competitors, buying out virtually all competitors and taking over their customer lists, or through creating a new market where competitors do not yet exist to any significant degree.

The stock and commodity investment community has long been prone to price manipulation through the efforts of large institutional investors who attempt to influence public perceptions of companies and increase the market value of their products. In the US, the Securities and Exchange Commission (SEC) is responsible for investigating such moves for potential prosecution under antitrust laws which were put in place at the end of the 19th century. Such legislation is designed to break up or prevent the concentration of business capital in niche industries under the control of one entity because it tends to discourage fair pricing and improvements in technology that emerge as new competition arises. Other democratic societies that support the concept of open and free markets have similar antitrust laws, such as the official provisions of the Treaty on the Functioning of the European Union in Europe that forbids such practices in the business world.

Man climbing a rope
Man climbing a rope

Examples of the emergence of monopolies in industry are prominent in the history of the United States. When new technologies arise such as the transcontinental railroad or telephone service that initially are provided by large pioneering companies with no direct competitors for their unique services, they can corner the market and set prices and services at any level that they wish without worrying about being undercut by competitors. A more recent example in the 20th and 21st centuries has been with a few firms in the US that have dominated the world market for computer operating systems. This has given them an ability to favor their own affiliated software development products for such platforms over that of direct competitors in the software industry.

One approach in many trading arenas that is used to corner a market is the concept of ghosting. Ghosting involves secret collaboration between companies and investors to manipulate the price of a product in which they all have a stake. An example of how this is done is where a wealthy investor agrees to buy a large share of stock in a company in subsequent, small blocks to gradually raise the price of the stock as the market is perceived to have an increased demand for it. Other entities in on the scheme that previously own stock in the company will then have the assurance that their stock price will rise and can make enormous profits as they sell off their shares in coordinated action with the buyer. This sort of practice violates the principle of a free market economy where prices are set by natural supply and demand, and it is an illegal attempt to corner a market.

Hoarding can work in a similar manner to ghosting in an attempt to corner a market and applies more directly to the commodities market instead of the stock market. When an investor purchases large quantities of a commodity that are available in existing inventories as well as in projected future inventories known as futures contracts, this will raise the price of the commodity on the open market when an increased demand for it is perceived. If the commodity is then withheld from the market for a period of time, perceived scarcity can raise the price even further, where the commodity can then be sold off in small increments to make an exceptional profit. Hoarding of commodities became such a problem in the US in the 1930s as a way to monopolize markets that laws were put in place to restrict the practice, such as allowing each investor to own no more than $100 US Dollars (USD) worth of gold at any one time.

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