Experience Curve

What is it?

When is it useful?

It is useful in market entry because the experience curve creates a subsytantial barrier to entry, a sub-scale competitor may never match the incumbent cost position

It could also be useful to justify penetration pricing in a new market. With penetration pricing, you will drive down the experience curve faster than any one else, and will dominate the market as the lowest cost player eventually

 

An Example?


How do you do the analysis?

Empirical studies have shown the rate of cost decrease from production experience is different in different industries

I want to know more

The theory underlying it is that companies learn through continuous imporvement as well as through econmies of scale

How can you adapt this concept?