## Experience Curve
### What Is It?
The experience curve describes the well-observed phenomenon that a firm's unit cost of production declines as its cumulative output (experience) increases.
> Core idea: "We learn as we grow."
It extends the older learning curve (which focused only on labour efficiency from repetitive tasks) to the whole firm, capturing broader cost reductions across all activities.
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### Why Do Costs Fall?
Four main drivers:
| Driver | Explanation |
|---|---|
| Learning effects | Workers and managers become more skilled with repetition |
| Economies of scale | Fixed costs spread over more units |
| Product redesign | Engineers find cheaper ways to build the same product |
| Technological improvement | Better machines and processes adopted over time |
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### Shape of the Curve
Plotted on a graph, unit cost falls steeply at first, then levels off as the firm matures. The curve is downward-sloping: the more experience accumulated, the lower the cost per unit.
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### Features
1. As a business grows it accumulates experience.
2. That experience can provide a competitive advantage over rivals.
3. Experience is therefore a key barrier to entry — a new entrant starts at the top of the curve with high unit costs.
4. Larger, more successful organisations possess a stronger experience effect.
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### Strategic Relevance
- Barrier to entry: New firms face high unit costs vs. established incumbents — discourages entry.
- Building market share: A firm that grows faster accumulates experience faster, reaching lower costs sooner than rivals → can price aggressively to capture share.
- Discouraging competition: The cost gap makes it hard for smaller rivals to compete on price.
- High-tech industries: Companies in electronics/telecom must recover huge R&D costs over large volumes — the experience curve drives the imperative to scale globally.