What is Cornering the Market?

Cornering the market is a business strategy that involves gaining a sizable degree of control on a given commodity or security. Essentially, an investor or a company will purchase as many units of the relevant commodities or securities as possible. This creates a situation where the majority holder of the commodity or security possesses a monopoly on the product and can thus have a tremendous amount of control over the sale price.

One of the most commonly utilized methods of working toward cornering the market is to engage in what is known as stockpiling. Essentially, stockpiling is quietly going about the business of purchases small lots of the commodity from various sources. Choosing to purchase in smaller lots provides two advantages for the investor. First, the smaller purchases are less likely to rouse attention from other investors, who could move to also begin buying up available units and thus slow down or even derail the effort at cornering the market. Second, incremental purchases will often allow the investor to gain at least a substantial share of the market place before it is necessary to file documents with any government entity that reveal the intent to attempt to control the market.

Cornering the market is often attempted, but historically has failed as often as the strategy has succeeded. One of the reasons for this is that as the unit prices begin to rise as a result of the increased demands of the primary holder of the commodity, consumers may simply choose to cut back on usage of the commodity, effectively cutting the demand. In order to lure consumers back, prices may have to be cut to the point that the unit price is below the price paid at the point of acquisition. Rather than gaining a monopoly on the market, the investor ends up losing money on the attempt.

Attempts to corner the market have occurred with all sorts of commodities. From cattle in the 19th and early 20th century to silver in the latter 20th century, cornering the market has continued to capture the attention and imagination of many persons who are very successful in various types of businesses. In some cases, the effort would result in a temporary market advantage that would ultimately be minimized by general economic conditions and changing consumer tastes. At other times, the effort would result in massive losses that would take years to recover.