Uncertainty in Learning Curves: Implications for Early Mover Advantage

The existence of a learning curve, in which costs decline with cumulative experience, suggests that early entry (and production) provides learning opportunities that create competitive advantage by reducing future production costs relative to later entrants. We argue that this proposition is subject to an under-appreciated limitation — the extent of progress down the learning curve may be substantially uncertain. If there is uncertainty in the learning curve, then the taken-for-granted wisdom regarding the benefits of learning curves may over- or under-emphasize the value of early entry. We consider two forms of uncertainty — prospective (future production cost) and contemporaneous (current production cost) uncertainty. We demonstrate computationally that while prospective uncertainty in the learning curve increases early mover advantage, contemporaneous uncertainty reduces early mover advantage. Further, we examine how these findings are contingent on learning spillovers between leader and laggard firms. We conclude with implications for future research regarding learning curves, the pursuit of early mover advantages, and the development of behavioral real option theories of competitive advantage.