#9 - There is relatively little room for growth in the

[Dancingbambarina]

I undertsand this question, but I just have a question on a response earlier about how we cannot equate market share with answer C's profit and revenues. It clearly says in the LRB that market share is measured by sales (revenues) or units sold. I am thus unsure how we came to this conclusion.

I am just generally confused about how sales and revenues and market share (and profits) relate to eachother. They're just quite confusing, honestly.

Thank you.

[Dave Killoran]

In some ways the market share vs revenues/profits topic is so broad that it is impossible to adequately cover in a simply reply, so just fyi there.

Market share can be defined in a variety of ways, but is often seen as a percentage based on overall/total sales in the industry. So, if we had $1M sales in a $100M market, we have 1% of the market. But, note that the share is based on a collective number which could be moving around over time. So an individual company revenue number dropping is meaningless if the collective sales dropped. Let's say in the above example our sales dropped to $500K. Sounds like we lost market share, right? No, not if the overall sales in the industry dropped to $10M. Then we'd actually have increased our market share from 1% up to 5%.

This scenario points to one of the ways you could weaken this conclusion, which is to show the overall market size could plummet drastically while a company maintains their sales. That's the most obvious line of attack, though, so the test makers choose not to go that route.

In (C), we move from a collective discussion about the industry as a whole to now talking about individual companies (or, at least, the individual companies that result from a merger). That's a whole different ballgame because we are now analyzing those results in isolation, kind of like looking at one house vs looking at a whole neighborhood of houses (which would be more along the lines of market share).

Not sure that answers all the questions, but it's a start! LSAC tends to play with this concept a fair bit, so it's something you want to get familiar with eventually.

Thanks!

[Dancingbambarina]

In some ways the market share vs revenues/profits topic is so broad that it is impossible to adequately cover in a simply reply, so just fyi there.

Market share can be defined in a variety of ways, but is often seen as a percentage based on overall/total sales in the industry. So, if we had $1M sales in a $100M market, we have 1% of the market. But, note that the share is based on a collective number which could be moving around over time. So an individual company revenue number dropping is meaningless if the collective sales dropped. Let's say in the above example our sales dropped to $500K. Sounds like we lost market share, right? No, not if the overall sales in the industry dropped to $10M. Then we'd actually have increased our market share from 1% up to 5%.

This scenario points to one of the ways you could weaken this conclusion, which is to show the overall market size could plummet drastically while a company maintains their sales. That's the most obvious line of attack, though, so the test makers choose not to go that route.

In (C), we move from a collective discussion about the industry as a whole to now talking about individual companies (or, at least, the individual companies that result from a merger). That's a whole different ballgame because we are now analyzing those results in isolation, kind of like looking at one house vs looking at a whole neighborhood of houses (which would be more along the lines of market share).

Not sure that answers all the questions, but it's a start! LSAC tends to play with this concept a fair bit, so it's something you want to get familiar with eventually.

Thanks!

Thanks very much Dave. That clears things up a lot.