PIE is the value to the buyers of the goods and services produced less the value of the resources that are used to produce them. However an industry can rarely capture all this value. Suppliers will capture some PIE by levying more than the opportunity cost of resources. Similarly, buyers who pay a price less than the maximum they are willing to pay will also typically capture some. Competition among the incumbent firms will dissipate some, and some will be lost to new entrants on the threat of entry.
The size of PIE is determined by the factors that shape industry demand and the opportunity cost of resources. Some of primary forces that make PIE larger are:
1. Increased demand:
- Fewer substitutes at higher prices
- More complements at lower prices
- Population growth
- Income growth
2. Cost reductions by suppliers and incumbents
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