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Learning Curves

Companies improve at making products as they produce more of them because experience at making and selling products provides information about how to do those things better. This concept, called the learning curve, means that firms gain advantages from experience. Firms that have more experience making and selling a product can often produce and sell that product more efficiently than competitors or can incorporate features that competitors cannot match. For example, Sony is able to produce compact disk players more cheaply than many new entrants to the business because it has figured out more efficient ways of manufacturing and selling those products than new entrants.

The learning curve provides a way for firms to capture the returns to introducing new products and services. By virtue of their experience producing a product, companies that have been offering a product for a long period of time can often produce that product more efficiently and with more features than can companies that are first offering a product.


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