Experience and the life cycle: Some analytic implications

The importance of experience has been recognized by economists for many years. The notions of a product life cycle, and by extension, a technology life cycle, are also well established in both management and marketing literature. However, the two concepts have never been integrated into a single theoretical framework. This paper proposes such a framework. Moreover, it explores some interesting implications of simple life-cycle models that include explicit learning effects. One of them is that the rate of cost reduction attributable to accumulating production experience depends on life-cycle stage. This phenomenon has been frequently observed, but never previously explained. Another implication is that the probability of ‘lock out’ of a superior technology by an inferior competitor with a head start is an explicit function of only three rate model parameters: the discount rate (d), the cumulative experience growth rate (b), and the parameter relating cost to experience (m). Finally, the theory implies that market-share is attributable to technological knowledge—the consequence (in part) of learning from experience—and offers a means of measuring the value of ‘pure’ technology.