Cap rates make no sense

[Sylvia B.]

I've read this article by Sergio Altomare - How to Calculate Cap Rate (& Where Many People Get It Wrong) several times and there is something that just doesn't make sense to me. 

These basic formulas do make sense:

• NOI / Cap Rate = Property Value
• Property Value x Cap Rate = NOI
• NOI / Property Value = Cap Rate

However, an example is given where the NOI is increased by either raising rents or decreasing expenses, and then this comment is made:

"In the above examples, you can really start to see the power of using the cap rate in the analyses. You bought a property for just over $900K, increased the NOI by $5K/year and have now increased the value to $1M!

The reason this happens is simple. The market dictates the cap rate, and the cap rate is based on the NOI. In this case, the cap rate at purchase and sale remained the same, but the NOI was raised by 10 percent."

What makes no sense to me is why the cap rate remains the same. It seems rather arbitrary. "The market dictates the cap rate, and the cap rate is based on the NOI." Those two phrases seem contradictory to me. If the market determines the cap rate (in some unexplained manner) then it is not based on the NOI.

Perhaps what I don't understand is how the market determines the cap rate.