Competitive Advantage

A. Discuss the concepts of experience curve effects and life cycles and why they are important for managers pursuing competitive advantage to understand. b. Explain how the two concepts can be used to together to guide managers’ analyses. (hint: recall our discussion of costs across various components of the value chain, whereby life cycles affected the speed of change or decline, the experience curve as indicating the rate of decline, and the value chain indicating the importance of particular activities). C. As new global competitors arise (e.g., China), what do you advise management to be aware of and watch for?

The experience curve effects and life cycles are two concepts that are essential for managers to achieve competitive advantage. The experience curve effects are related in how the High Accumulated Volumes of Production cause Low Per Unit Costs and lead to High Volume Profits. The life cycle is related to the different effects that cause to the user and producer during the life cycle of the product or service (Development, Growth, Shakeout, Maturity and Decline).

As people and/or business get more and more experience on a task or a production process, they usually become more efficient (reducing costs and increasing revenues) at it, following a progress in the learning curve first getting easier and then harder as one approaches a limit.

The size of the experience effect is measured by the proportion by which costs are reduced with subsequent doublings of aggregate production. If costs decline systematically with increases in cumulative output, then a firm’s costs relative to its competitors depend on its cumulative output relative to that of competitors. If a firm can expand its output at a greater rate than its competitors, it is then able to move down the experience curve more rapidly than its rivals and can open up a widening cost differential, but it is important to notice that the first company to enter a market is not necessarily...