Experience curves as a planning tool

Abstract

Observers have found that the ``learning-curve'' phenomenon occurs in many complex situations and is not confined to the human learning of repetitive manual skills. If experience improves performance, it should follow that the company that has produced the most widgets will be the most efficient widget producer. This implies that market share is vital in determining potential profitability and that new products, whether developed internally or acquired outside, are doomed to lackluster financial performance unless they capture a dominant market position. The learning-curve effect and its more generalized experience-curve companions are reviewed in this article. Some typical cost and price experience curves are discussed along with the technical details of their derivation. The possible inferences that can be drawn from the observed facts are examined and tested for their qualitative agreement with certain known trends and tendencies.