Experience Curve Pricing and Cost Inflation: Evidence from South Korea
Experience curve pricing rests on the notion that as cumulative production doubles, businesses achieve cost reduction through time saving learning. This principle has been applied to various fields such as production management and planning, budget control, pricing and strategy. While the existence of experience curve is documented in various industrial sectors (Boston Consulting Group, 1975) in the USA, however, the literature offers very little evidence of it in international setting. In this paper, we explore experience curve pricing in several industries in South Korea, for two reasons. First, it is a major exporting power in global trade of consumer and high technology products, and second, the period under study, 2003-2008, Korean manufacturing experienced inflation in producer prices. We tested 156 products in 11 industries and found that the cost inflation hindered the experience curve effects, and, once corrected for the inflation, more products display the experience curve effect.
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