Experience Curve

What is Experience Curve?

The experience curve, also known as the learning curve, is a concept in economics and business strategy that describes the relationship between the unit cost of a good or service and the accumulated volume of its production. The experience curve suggests that as an organization produces more of a good or service, the unit cost of that good or service will decrease due to improvements in efficiency and economies of scale.

The experience curve is typically represented graphically as a downward-sloping curve, with the unit cost on the vertical axis and the accumulated volume of production on the horizontal axis. The slope of the curve reflects the rate at which unit costs decrease as production volume increases.

The concept of the experience curve was first introduced by the Boston Consulting Group in the 1960s, and it has since been used in a variety of industries to analyze the cost and efficiency of different products and services. The curve can help organizations to identify opportunities for cost savings and to develop strategies to capture them.

One of the key implications of the experience curve is that organizations that are able to achieve a large market share and produce a high volume of a good or service will be able to achieve lower unit costs than their competitors. This gives them a significant cost advantage, which can help them to compete more effectively. Organizations can take advantage of this concept by analyzing their own costs, and seeking to increase production volume in order to achieve lower unit costs.