EXPERIENCE CURVE AND DIFFUSION
Although prior work on experience curves spans many product categories in many
industries, typically the estimation proceeded without concentrating on the stage of the product
life cycle or the role of experience curve pricing in driving diffusion. The relationship between
cost reduction gained from cumulative production and diffusion of new products is intuitive
because experience curve allows marketers more freedom in pricing products to achieve desired
market share. Bass (1980) combined the experience curve effects with the social contagion
effects model of diffusion (imitation and innovation) and found that experience effects on price
reduction sped up the rate of adoption. The focus of this paper is to estimate the experience curve
effect on price and the resulting effect on household adoption of consumer electronics products.
This paper improves upon previous studies by including a larger number of products (20 versus 4
included in Bass (1980)) and focusing on the introductory/growth stages of these products
launched at various points of time. Kortge et al. (1994) suggested that “the experience curve is
best used during the growth phase of the product life cycle” (p. 224). Bass (1980) justifies
growth stage because most purchases are for first time owners and replacement purchase is yet to
be a major part of sales. The repeat purchases do not expand the adoption of the product in
question.