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Cost leadership strategy and experience curves
Author(s) -
Amit Raphael
Publication year - 1986
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.4250070308
Subject(s) - investment (military) , learning curve , production (economics) , cost leadership , unit cost , competitive advantage , point (geometry) , microeconomics , economics , scale (ratio) , unit (ring theory) , industrial organization , production cost , business , marketing , management , mathematics , engineering , political science , mechanical engineering , physics , geometry , mathematics education , quantum mechanics , politics , law
Investing in cost leadership by rapidly riding down the experience curve is a common way to establish a firm's competitive advantage. Its success depends, in part, on the factors that underlie the experience curve. In this paper we make the distinction between cost declines that occur at any point in time and cost declines that may occur over time. This leads us to consider a revised experience concept in which the dynamic interrelationship between a firm's production rate, cumulative production and unit cost is explicitly considered. We provide a detailed analysis of various scale‐learning relationships and their strategic implications for establishing competitive advantage through an investment in cost leadership. We also prove analytically that such investment should take place only in the presence of learning.