The experience curve and the market size of competitive consumer durable markets

Kaldasch, Joachim (2011): The experience curve and the market size of competitive consumer durable markets.

Abstract

An evolutionary model of the product life cycle is applied to derive the experience curve and the market size of (expensive) durable goods. The experience (learning) curve suggests that the real costs per unit decrease with an increasing cumulative output (Henderson's law). Based on the idea that in a competitive market firms are forced to pass cost advantages on to the price, the evolutionary model suggests that the mean price and also the mean costs are governed by an exponential decline with time. Simultaneously the mean price evolution satisfies Henderson's law. The market size is defined here by the number of active firms. The market size is shown to follow the total market revenue if the latter exhibits fast variations, else the size is nearly constant. A comparison with an empirical investigation confirms the model predictions.

• Item Type: MPRA Paper
• Language: English
• Keywords: experience curve; learning curve; market evolution; evolutionary economics; economic growth; product diffusion; Gompertz diffusion; product life cycle; durable goods
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D41 - Perfect Competition; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; A - General Economics and Teaching > A1 - General Economics > A10 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E27 - Forecasting and Simulation: Models and Applications; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

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