Cornering (economy)
The term cornering of a market denotes in the economic sense the achievement of extensive control over a commodity or a security , but without achieving a monopoly . This makes it possible to determine the price. Well-known examples are Microsoft (desktop operating systems) or Wal-Mart (supermarkets in the USA ).
There are various strategies to "corner" a market. The most common is to buy up and hoard a large percentage of the commodity offered in a niche market. With the advent of futures trading, the opportunity arose to buy a large number of futures of a commodity and sell them after the price increased due to scarcity.
Under certain circumstances "cornering" can represent a form of market manipulation ; in the case of securities "cornering", this would be prohibited in Germany under Article 15 of the Market Abuse Ordinance and sanctioned under Section 120 (2) No. 3 and Section 15 No. 2 and Section 119 (1) of the WpHG . The Market Abuse Regulation defines market manipulation in its Article 12.
The prerequisites for the possible success of “Cornerning” are a relatively narrow market, considerable financial resources and a product group with few options for substitution with other products. A number of attempts at financial "cornering" have been recorded in history. Most failed. "Cornering" attempts aimed at gaining the largest possible market share and thus a dominant position are more successful . Examples are Microsoft or IBM .
Examples
The most famous attempt to cornern a market that was the silver speculation the Hunt brothers . From the mid-1970s, the Hunts and their partners bought around 150 million ounces (around 5,000 tons) of physical silver and around 200 million ounces of silver on the COMEX commodity exchange in New York. This drove the price of silver from two to fifty US dollars an ounce until speculation collapsed in 1980. The price normalized in the short term; the Hunt brothers went bankrupt .