Measuring market size by value and volume, how the level of competition affects pricing, profit margins and the need for differentiation, the strategies that give an advantage, and how growth or decline in market size changes competition.

What you need to know

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Process

Why does market size affect the number of competitors?

Evaluation

What happens to a business as competition intensifies?

Key term

What typically happens to competition when market size declines?

Questions from this subtopic

Each one with the model answer underneath.

1
Define market size.
Model answer
Market size is the total value or volume of all sales within a particular market over a specified time period.
2
How is market size measured by value?
Model answer
By calculating the total revenue generated from sales in monetary terms.
3
How is market size measured by volume?
Model answer
By calculating the total quantity of units sold.
4
Why might a larger market size attract more competitors?
Model answer
A larger market size indicates greater potential for sales revenue, which makes it more attractive for businesses to enter and compete.
5
Why might a business choose not to enter a market despite its large size?
Model answer
Because a large market size may attract many competitors, making it difficult to establish a profitable position.
6
How does a high level of competition affect pricing strategies?
Model answer
It creates pricing pressure, often forcing businesses to lower prices to remain competitive.

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The competitive environment

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