Cornering the market refers to acquiring enough shares of the demand. As such, the company has the power to influence its price. It is something close to a monopoly, but technically it isn’t.
What it implies is that the market, or the consumers, are pushed to the wall where they have no other option. To make this happen, the investor must make a huge investment to dominate the playing field, and this includes buying many corporations that are supposed to compete with each other.
Examples of Cornering a Market
To give context to this term, below are some examples:
- A telco company that has 90% of the share of the subscribers or users;
- A company that owns a large number of shares of a stock;
- Hoarding commodities such as rice and wheat to control their price.
Any company that has strong control over an asset, service, stock, or commodities is a company that has cornered the market. However, it must be in such a strong position that it can influence its price.
Is Cornering a Market Illegal?
Yes, it is illegal to corner the market, but companies have devious ways to get around laws. Cornering the market is illegal because it is manipulative. It does not exemplify the principle of a fair market. A company that corners the market is hurting the economy.
Whenever a company has tremendous control over something, the price of the commodity increases. It is not fair to the consumers, considering that this price would not have gone up if there were other options.
It is the reason there are antitrust laws in countries. They prevent the merger of large companies that will result in manipulation. It is also the reason why many website operators compete against each other, like GG Bet online.
In the casino industry, it is not unusual for one company to own several casino brands, like GG bet casino online. This process is allowed, but there are entities that closely monitor the merger of these huge corporations.
What the government institutions are trying to avoid is the time when casino companies merge to a point where players no longer have anywhere to go to play.
Cornering That Went Wrong
The public does not like market manipulation, and they will eventually find out. If they do, the “cornerer” will find himself in a precarious financial position.
For as long as there is opposition to market manipulation, the entity that attempts to corner the market is not going to win.
A good example of this is the case of the Hunt Brothers. Back in the early 1970s, they started hoarding silver.
What they did was buy large amounts of silver. As such, they had control over the price. They kept doing this until the 1980s.
It took them ten years to finally go down. The time came when nobody wanted to lend them money to buy silver anymore.
Since they were pumping the price, they must have the funds to keep buying silver. When the time came that they were out of funds, the public could not afford to buy the silver at the same price that they did. This made the price of silver plummet.
A situation like this can also happen in cryptocurrency. A company that hoards a crypto asset can influence its price, making people believe that there is a demand. Once the price goes up, the company’s going to exit its position.
The trouble with this approach is that once the public finds out who is hoarding the rice, they will refuse to buy, knowing that the price is inflated.
How Does It Exactly Work?
To fully understand how cornering a market works, one has to look at how the “cornerer” operates. Below is an example of bitcoin.
Suppose that company aims to buy 100,000 Bitcoins. They will not make this one-time purchase. Instead, they will buy 1,000 coins at a time.
After purchasing 1,000 coins, they will buy more at a higher price. They will keep on doing this until the market starts to believe that there is a demand for it.
As such, the people in the market will not hesitate to buy bitcoins at a higher price. The “cornerer” will keep buying and hoarding the coins until the market price reaches his desired profitable price.
Once this happens, the “cornerer,” who, by now, has amassed 100,000 bitcoins, is going to dump the coins at either the current market price or lower.
They will sell their bitcoins down to the point of a low price, but this low price is never lower than what they originally bought the coins for. In the end, they earn a huge profit.
Summary
Cornering the market is bad. Nothing good will come out of it. It is good for the “cornerer,” but it is never good for the market or the economy.
In the end, people will lose their investments. Those that bought at a high price will never see their money again. They will be forced to sell at a lower price just to be able to recoup a bit of what they invested.
