Experience curve

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The experience curve is a graphical representation that relates production costs to the accumulated output of a given product. This diagram shows that the unit cost of producing a product decreases as the accumulated production volume increases.

Also called the “experience effect,” the experience curve is primarily explained by:

  • the learning economy: through learning and specialization, employees can significantly reduce their production time,
  • economies of scale: when the volume of production increases, the manufacturing cost decreases, because the fixed costs are spread over a greater number of products,
  • economies of scope: the company can offer different products without investing in new machines,
  • the size effect: the company increases its bargaining power with suppliers as it grows,
  • optimization of the production process: simplification and standardization of production processes,
  • the substitution of labor by automation, i.e. the replacement of capital by labor.

This notion plays a key role in a marketing strategy of cost domination.