Artificial intelligence adoption in a monopoly market

Gans, Joshua S.

doi:10.1002/mde.3734

Cited by 2 publications

(1 citation statement)

References 21 publications

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“…One such avenue is to consider AI adoption by firms with market power-that is, who do not take market prices as given. This is explored by Gans (2022), who finds that the value of AI adoption differs depending on whether it is informing pricing, output choices or both. Another avenue might explore AI adoption beyond the prediction of demand.…”

Section: Long-run Analysismentioning

confidence: 99%

Artificial intelligence adoption in a competitive market

Gans

2023

Economica

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Economists have often viewed the adoption of artificial intelligence (AI) as a standard process innovation where we expect that efficiency will drive adoption in competitive markets. This paper models AI based on recent advances in machine learning that allow firms to engage in better prediction. Focusing on prediction of demand, it is demonstrated that AI adoption is a complement to variable inputs whose levels are altered directly by predictions and whose use is economized by them (that is, labour). It is shown that in a competitive market, this increases the short‐run elasticity of supply and may or may not increase average equilibrium prices. Generically, there are externalities in adoption, with this reducing the profits of non‐adoptees when variable inputs are important, and increasing them otherwise. Thus AI does not operate as a standard process innovation, and its adoption may confer positive externalities on non‐adopting firms. In the long run, AI adoption is shown to lower prices generally and raise consumer surplus in competitive markets.

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Section: Long-run Analysismentioning

confidence: 99%