When a firm uses a penetration pricing strategy, they expect the experience ________ effect to occur.

• A. Economies of scale
• B. Learning curve
• C. Experience curve effect
• D. Cost reduction

Answer: (C)

The experience curve effect explains why penetration pricing can work: as cumulative production rises, the cost per unit falls due to accumulated experience, improved processes, and greater efficiency. With the lower price aimed at quickly gaining market share, the firm benefits from these cost reductions over time, making the sustained low price more viable as output grows. Economies of scale involves spreading fixed costs over more units, which contributes to lower costs but isn’t the specific mechanism tied to learning from production. The learning curve is related—focused on improvements in speed and effort in producing units—but the experience curve effect captures the broader cost decline that accrues with experience across the whole production process.