Experience Curve

Overview

The experience curve describes a theory associated with the Boston Consulting Group (aww Kiechel chap 3). It postulates that certain industries will face a variable cost curve that bends down instead of up as the company begins to benefit from economies of scale. copy

Strategic Considerations

If it is true that a firms average cost curve bends down as more product is produced, it may be in the firms interest to price its products below the normal profit maximizing price (or even below cost) in the theory that grabbing market share will push the firm down the cost curve and drive its competitors away. If succesful, the firm could find itself in a favorable cost position with few competitors and healthy profits.