Markets and Market Share

The makers of the LSAT expect you to understand the operation of markets and
the concept of market share. Market operation includes supply and demand,
production, pricing, and profit. None of these concepts should be unfamiliar to
you as they are a part of everyday life.
Market share is simply the portion of a market that a company controls. The
market share can be measured either in terms of revenues (sales) or units sold.
For example:
Heinz has a 60% market share of the $500 million ketchup market.
Jif brand peanut butter sold 80 million units last year, a 30% market share.
Because market share is a numbers and percentages concept, market share can
change when factors in the market change. For example, a company can gain
market share (percentage) if the market shrinks and they maintain a constant
size, or if they grow in an unchanging market. However, a company losing
market share does not mean that their sales decreased, only that they became a
smaller entity in the market relative to the whole (the market grew and they
stayed the same size, for example). Similarly, a company could lose sales and
still gain market share if the overall market became smaller.
Regardless of the size of a market and even though the total amount of the
market can shift, the total market share must always add up to 100%.
Please take a moment to complete the following question:
1. Rumored declines in automobile-industry revenues are exaggerated. It is true that automobile manufacturers’ share of the industry’s revenues fell from 65 percent two years ago to 50 percent today, but over the same period suppliers of automobile parts had their share increase from 15 percent to 2 percent and service companies (for example, distributors, dealers, and repairers) had their share increase from 20 percent to 30 percent.
Which one of the following best indicates why the
statistics given above provide by themselves no
evidence for the conclusion they are intended to
support?
(A) The possibility is left open that the statistics
for manufacturers’ share of revenues come
from a different source than the other
statistics.
(B) No matter what changes the automobile
industry’s overall revenues undergo, the
total of all shares of these revenues must be
100 percent.
(C) No explanation is given for why the revenue
shares of different sectors of the industry
changed.
(D) Manufacturers and parts companies depend for
their revenue on dealers’ success in selling
cars.
(E) Revenues are an important factor but are not
the only factor in determining profits.
The conclusion of the argument states that the rumored declines in automobileindustry
revenues are exaggerated (a numerical statement), but the premises
provided in support of this argument only address the market share percentages
of the three groups that have automobile-industry revenues (percentage
statements). The percentage statements used by the author only indicates that
the percentages have changed, not whether overall revenue has changed:

                    2 Years Ago          Today
Manufacturers share           65%            50%
Suppliers share               15%            20%
Service company share         20%            30%
Total market size in %         100%           100%
Although the composition of the market has changed in terms of the market
share of each group, this fact tells us nothing about industry revenues because
market shares will always add up to 100% regardless of the actual dollars
involved. Thus, automobile-industry revenues could have risen dramatically and
the percentages above could still be accurate.
Answer choice (A): Although it is true that the possibility is left open that the
statistics for the manufacturers share may come from a different source, this
does not address the fundamental percentage-to-number error in the argument.
Answer choice (B): This is the correct answer. The answer reveals the error of
the author: the changing market shares of different groups have no impact on
the actual amount of revenues. In all instances, the market shares will add up to
100%, so a discussion of shifts within this 100% is meaningless as far as
making a determination of whether revenues declined.
Answer choice (C): This is not a flaw of the argument. The author is allowed to
simply note that the shares changed and use those facts to draw a conclusion. In
the argument the conclusion is faulty, but not for the reason cited in this answer.
Answer choice (D): The interrelationship of the groups named in the stimulus is
not an issue in determining whether the conclusion is in error.
Answer choice (E): The argument is about revenues, and information about
profits will not reveal the error in the reasoning.