Experience Curve: Manufacturers can and should price their products unprofitably low because the cost of making one thing decreases as they produce more and gain more experience.
Podcast: TSMC Founder Morris Chang: The Complete History and Strategy
Doing more often costs less. This is precisely what happens in business according to a BCG famous theory.
This principle, known as the experience curve, held that a company's unit production costs would fall by a predictable amount (around 20% to 30%) every time their cumulative production doubled. In other words, the cost of making it goes down as you make more of one thing.
That's why it's also called experience curve. When you gain more experience, you become more efficient almost predictably.
Two experiences
TSMC uses the experience curve as a fundamental principle in its strategy. In Morris Chang's words, "he is a serious student of experience curve". Because TSMC knows the cost will eventually decrease when they gain high production volume, they can start with lower prices, even if initially unprofitable, to attract more customers and increase production volume rapidly. The goal is to crowd out competitors and become the dominant player, enabling economies of scale and cost advantages.