Knowledge Creation by Consumers and Optimal Strategies of Firms

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