Diagnosing the Experience Curve

• Main Authors: Montgomery, David B., Day, G. S.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1983
• Subjects: Business
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2316; https://proquest.umi.com/pqdlink?did=7096726&sid=16&Fmt=2&clientId=44274&RQT=309&VName=PQD
• Institution: Singapore Management University

In many cases, the use of the experience curve has led to misleading implications for business strategy. The experience curve describes an inverse relationship between inflation-adjusted value-added costs and cumulative volume of production. It predicts that the largest competitor in a business environment will have the lowest costs of production and enjoy the highest profits. However, the effects of the experience curve are determined by the underlying influences of cumulative learning experience, scale of production, and production technology. When scale, technology, and learning characterize the business environment, the experience curve can be a useful tool in developing business strategy, if application is focused on particular strategic issues. Several types of experience curves have been developed for the strategic issues of: 1. competitive cost comparisons, 2. narrowing competitive cost differentials, 3. industry price forecasting, and 4. competitive entry into new products and markets.