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Knowledge Creation by Consumers and Optimal Strategies of Firms

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  • Tadashi Yagi

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Abstract

The purposes of this paper are to describe the behaviors of consumers and producers in the knowledge creation process and derive the optimal strategy for increasing the value of creativity in the market. This paper mathematically models the incentives that consumers have to contribute to knowledge creation. This analysis complements the previous studies and elucidates the system of knowledge creation through collaboration among consumers. Unlike in previous studies, the price setting strategy of producers is examined by relating it to knowledge creation activities of consumers. The analysis in this paper reveals that the value of a product to the consumer depends on the amount of knowledge creation by consumers, which is affected by the amount of public infrastructure, which, in turn, affects the price of the product. The price movement of IT products in the real world is consistent with the predicted movement of the equilibrium price in the market. Independently of the drastic increase in the value of IT products via the rapid increase in knowledge creation, the price of IT products has not been increasing. In this regard, the model presented in this paper captures part of the real-world movements. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Tadashi Yagi, 2014. "Knowledge Creation by Consumers and Optimal Strategies of Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 5(3), pages 585-596, September.
  • Handle: RePEc:spr:jknowl:v:5:y:2014:i:3:p:585-596
    DOI: 10.1007/s13132-014-0195-6
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    References listed on IDEAS

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    1. Marcus Berliant & Masahisa Fujita, 2008. "Knowledge Creation As A Square Dance On The Hilbert Cube," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1251-1295, November.
    2. Christopher Gunn & Alok Johri, 2011. "News and knowledge capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 92-101, January.
    3. Marcus Berliant & Masahisa Fujita, 2009. "Dynamics of knowledge creation and transfer: The two person case," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(2), pages 155-179, June.
    4. Berliant, Marcus & Fujita, Masahisa, 2012. "Culture and diversity in knowledge creation," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 648-662.
    5. Govindan, Srihari & Wilson, Robert, 2001. "Direct Proofs of Generic Finiteness of Nash Equilibrium Outcomes," Econometrica, Econometric Society, vol. 69(3), pages 765-769, May.
    6. Marcus Berliant & Masahisa Fujita, 2011. "The Dynamics of Knowledge Diversity and Economic Growth," Southern Economic Journal, Southern Economic Association, vol. 77(4), pages 856-884, April.
    7. Govindan, Srihari & Wilson, Robert, 2003. "A global Newton method to compute Nash equilibria," Journal of Economic Theory, Elsevier, vol. 110(1), pages 65-86, May.
    8. Stephen Gourlay, 2006. "Conceptualizing Knowledge Creation: A Critique of Nonaka's Theory," Journal of Management Studies, Wiley Blackwell, vol. 43(7), pages 1415-1436, November.
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