Jumping to Hasty Experience Curves

• Main Author: Nobuo TAKAHASHI
• Format: Article
• Language: English
• Published: Global Business Research Center 2013-04-01
• Series: Annals of Business Administrative Science
• Subjects: learning curve; experience curve; search theory; initial concavity; progress function
• Online Access: https://www.jstage.jst.go.jp/article/abas/12/2/12_71/_pdf/-char/en

The “experience curve” used to be treated as a rule of thumb in strategic management theory. However, it would be hasty to conclude that an approximately 80% log-linear experience curve is a rule of thumb regardless of the industry, company, or product. According to the fundamental research on learning curves, generally, the new model of a product is partly composed of old model parts and we cannot observe the progress of these parts from the beginning of the processes. Therefore, in the first product of the new model, the learning rates of old model parts cannot be identical logically, even if the parts’ learning rates are identical at the beginning. In fact, empirical data repeatedly deny identical learning rates for all products. Applying search theory, we obtain an approximate log-linear learning curve and show the curve’s initial concavity, that is, if we started observing the progress midstream, and not from the beginning of the process. Thus, both varied learning rate proper to each product and initial concavity of the learning curve are phenomena induced by observing the progress midstream.