Background
A “corner” in financial terminology refers to a situation in which a market participant acquires enough control of a particular commodity, security, or market segment to manipulate the price. This can involve futures contracts or large stockpiles of a commodity.
Historical Context
Throughout financial history, especially in commodity and futures markets, various instances of market participants attempting to “corner” markets have drawn regulatory scrutiny and led to significant economic implications. Famous cases include the Hunt Brothers’ attempt to corner the silver market in the late 1970s.
Definitions and Concepts
A market participant “corners” a market by purchasing extensive quantities of a commodity or securities future, restricting the availability, and thereby artificially driving prices upward. When prices soar, those who are obliged to deliver the commodity or security find it challenging to fulfill their contracts, potentially leading them to incur substantial losses or pay elevated prices.
Major Analytical Frameworks
Classical Economics
In classical economics, a corner is often viewed with suspicion as it disrupts the free market’s natural price-setting mechanism.
Neoclassical Economics
Neoclassical economists would analyze a corner as an instance of market imperfection or failure since it infringes upon the theories of supply and demand equilibrium.
Keynesian Economics
From a Keynesian perspective, the intervention in market dynamics, including attempts to corner, might necessitate regulatory measures to stabilize markets and prevent harmful economic ripple effects.
Marxian Economics
Marxian economics would likely interpret a corner as a manifestation of capitalistic monopolistic tendencies and exploitation, where wealthy actors manipulate markets to their advantage.
Institutional Economics
Advocates of institutional economics might focus on the role of market regulations and institutions in either allowing or preventing corners. They examine the infrastructure and rules governing market behavior.
Behavioral Economics
Behavioral economists could analyze the psychology behind hoarding and market manipulation, studying why and how rational or irrational market behaviors emerge.
Post-Keynesian Economics
Post-Keynesian economics may critique the systematic and inherent instability introduced by attempts to corner a market, advocating for more stringent regulatory oversight.
Austrian Economics
Austrian economists might argue against market interventions but acknowledge that a corner is a form of market manipulation opposed to natural price discovery.
Development Economics
Development economists may examine the impact of a corner on developing economies, especially if it involves crucial commodities that affect food security or energy supplies.
Monetarism
Monetarists would be concerned with the macroeconomic implications, viewing corners as disruptions that could distort key economic indicators like inflation or money supply.
Comparative Analysis
In comparing market cornering to various economic models and theories, it becomes clear that most schools of thought view it as an anomaly or unideal scenario necessitating either market corrections or regulatory intervention.
Case Studies
Noteworthy attempts to corner markets, like the Hunt Brothers’ silver incident, provide critical insight and lessons for regulators, market participants, and economists. These case studies regularly inform contemporary market policies.
Suggested Books for Further Studies
- “The Big Rich” by Bryan Burrough
- “Traders, Guns & Money” by Satyajit Das
- “Liar’s Poker” by Michael Lewis
- “When Genius Failed” by Roger Lowenstein
Related Terms with Definitions
- Futures Market: A type of financial market where participants can buy and sell contracts for the delivery of commodities or securities at a future date.
- Commodity Hoarding: Accumulating large quantities of a commodity to manipulate its market price.
- Market Manipulation: Actions aimed at creating false representations about the supply, demand, or price of security, commodity, or asset.
These related terms are instrumental in understanding the broader context of market cornering dynamics.
