The Strategic Implications of Learning by Doing

This paper examines firm strategy when competitors are at different points along the learning curve. It shows that firms high on the learning curve will have strong incentives to exclude new competitors, while firms that are learning more slowly will have weaker incentives to hinder new competitors and may even wish to encourage entry. The same strategies are shown to apply when firm reputation is acquired through participation in an industry. I suggest several examples of strategic behavior that takes advantage of differential learning speeds or heterogeneous reputations, and explore a variety of applications of the principle involved. I wish to thank, without implicating, Tom Cottrell, Herb Emery, Nancy Gallini, Ken Hendricks, Yehuda Kotowitz, Frank Mathewson, Ralph Winter, Lasheng Yuan, seminar participants at the Universities of British Columbia, Calgary, and Toronto. The Strategic Uses of Learning by Doing 1