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on Business Economics |
| By: | Fernández, Gastón P. (Luxembourg Institute of Socio-Economic Research (LISER)); Rammer, Christian (Department Economics of Innovation and Industrial Dynamics ZEW - Leibniz Centre for European Economic Research, Mannheim, Germany); Czarnitzki, Dirk (Department of Management, Strategy and Innovation, KU Leuven, Belgium) |
| Abstract: | This paper provides an overview of evidence on firms’ adoption of Artificial Intelligence (AI). We revisit the main conceptual drivers of AI uptake discussed in the literature and summarize global trends in AI diffusion. We then examine the firm characteristics associated with adoption—including the distinction between in-house development and external acquisition—and highlight how patterns differ between general AI and generative AI technologies (GenAI). Next, we review the emerging literature on the productivity effects of AI, distinguishing non-experimental firm-level studies from recent experimental and quasi-experimental evidence on task-level impacts. As a case study, we draw on recent firm-level data from the German Innovation Survey to investigate how adoption decisions correlate with firm size, age, R&D intensity, human capital, location, and strategic orientation, and how these patterns vary across stages and types of AI adoption. |
| Keywords: | Artificial Intelligence, Determinants, Impacts, Literature Survey |
| JEL: | O14 O31 O32 O33 L25 M15 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18991 |
| By: | Joshua S. Gans; Peter Landry |
| Abstract: | Firms ask workers to train AI systems that will replace them. We model this with a worker who can shirk, cooperate with training, or obstruct training while maintaining productivity. Because training ends the job but only cooperation completes training, dismissal becomes a weaker penalty for shirking. The firm must raise the worker’s rent, and the worker gains from their replacement. AI can create jobs paying more than they produce and eliminate jobs it never automates. Firms paying only wages may slow training. A credible completion bonus equal to the worker’s rent without AI removes both the gain and the slowdown. |
| JEL: | D86 J24 J41 M52 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35950 |
| By: | Philip Bodenschatz; Peter H. Egger; Arne Nagengast |
| Abstract: | China’s export expansion increasingly challenges advanced-economy exporters in third markets. Using confidential German exporter data, we generalize the canonical China-shock instrument to multiple destinations, exploiting Chinese gains in products across similar markets. Within firms, export growth falls in destination-product markets where Chinese market shares rise, through weaker growth among continuing relationships and market exit. Growth in estimated quality and unit values also declines, while stronger quality, price, product, and destination advantages cushion losses. Market exit and weaker entry account for more than half of aggregate adjustment. Structural-gravity evidence attributes China’s gains mainly to quantity expansion and rising exporter-product competitiveness. |
| Keywords: | China shock, export competition, firm heterogeneity, German exporters, China-shock instrument |
| JEL: | F14 F12 L25 C26 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13079 |
| By: | Alviarez, Vanessa; Cevallos Fujiy, Brian; Espinoza Escobar, Angel De Jesus; |
| Abstract: | Do the boundaries of the multinational firm shape how shocks propagate through global production networks? We link U.S. Bill of Lading microdata, geocoded natural disaster records, and cross-border ownership data to trace the transmission of exogenous supply disruptions from foreign suppliers to U.S. importers. Exploiting the quasi-random timing and location of natural disasters in a staggered event-study design, we document that disasters abroad generate sharp, persistent export declines at affected suppliers, shocks that propagate downstream, reducing the growth rate of U.S. importers total purchases by up to 25 percentage points. Transmission, however, is far from uniform: non-MNC buyers contract roughly twice as much as importers belonging to global corporations, and intra-firm relationships contract about a third less than arms-length ones. These patterns point to the internal networks of multinational firms as shock absorbers that attenuate and redirect supply-side disruptions, suggesting that firm boundaries are not merely organizational choices but also determinants of macroeconomic resilience. |
| Keywords: | natural disasters;Shock propagation;firm-to-firm trade;Multinational firms;Intra-firm trade;Production networks;Firms |
| JEL: | F14 F23 L14 L23 Q54 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14800 |
| By: | Nirash Paija; Raja Timilsina; Rabindra Nepal; D’Maris Coffman |
| Abstract: | Reliable electricity is critical for firms in developing economies, yet improvements in electricity infrastructure may not translate immediately into better firm performance. This study examines whether grid upgrades were associated with changes in electricity reliability and firm performance in Nepal. We combine three waves of the World Bank Enterprise Survey (2009, 2013, and 2023) with city-level information on major grid upgrades and predetermined industry electricity intensity from the 2006/07 Census of Manufacturing Establishments. Using a difference-in-differences-in-differences (DDD) framework, we exploit variation across time, upgraded and comparison cities, and firms’ predetermined industry electricity intensity. The baseline estimates suggest that a one-standard-deviation increase in electricity intensity is associated with a 32.3-percentage-point larger decline in outage incidence and approximately 14.1 fewer hours of monthly outage exposure in upgraded cities relative to comparison cities. However, statistical significance is sensitive to model specification, and the outage-exposure estimate depends substantially on the composition of the comparison group. We find no statistically significant effects on real sales, employment, or labor productivity, while the positive estimates for total factor productivity provide only suggestive evidence of improvement. Pre-treatment placebo tests reveal no statistically significant differential changes, although the limited pre-treatment observations constrain their interpretation. Overall, the findings suggest that grid upgrading may improve electricity reliability, but the evidence is sensitive to identification and inference choices, and its implications for broader firm performance remain uncertain. |
| Keywords: | electricity reliability, grid infrastructure, firm performance, labor productivity, electricity intensity, difference-in-differences-in-differences, Nepal |
| JEL: | D24 L94 O12 O18 Q43 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-89 |
| By: | Cindy Justo; Antonio Navas; Enrico Vanino |
| Abstract: | This paper studies the heterogeneous effects of trade in services barriers on firm-level exports, focusing on the consequences of the UK withdrawal from the European Union and the introduction of the EU–UK Trade and Cooperation Agreement (TCA). Using detailed firm-level transaction data on UK services exports combined with sectoral measures of regulatory restrictiveness, we show that UK services exports to the EU declined significantly following both the Brexit referendum and the implementation of the TCA, with substantially larger effects after regulatory barriers were formally reintroduced. The effects are highly heterogeneous across firms, following an inverted U-shaped pattern with small and large firms more negatively affected, and are particularly pronounced for foreign-owned firms using the UK as an export platform. Crucially, we show that barriers related to foreign entry are the primary drivers of the observed decline, while other regulatory dimensions play a limited role. These findings highlight the importance of firm heterogeneity and regulatory alignment in shaping services trade outcomes. |
| Keywords: | trade in services, Brexit, trade and cooperation agreement, firm heterogeneity, services trade barriers, trade policy uncertainty |
| JEL: | D22 F13 F14 F15 F23 L80 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13084 |
| By: | Vahagn Jerbashian; Montserrat Vilalta-Bufi |
| Abstract: | We provide evidence from a 2025 survey of individuals in Spain on workplace use of artificial intelligence (AI) and other modern digital technologies. AI use is already economically meaningful but far from pervasive, with about 16% of workers reporting AI use. Its adoption is highly uneven across workers and jobs, with strong gradients by education, age, earnings, and firm size and scope, as well as substantial within-occupation heterogeneity. AI use is strongly correlated with the use of other modern technologies, which accounts for a larger share of variation than any worker or job characteristic considered separately, including occupational exposure measures. The purposes of AI use also vary markedly across demographic groups and jobs. Users report predominantly positive productivity effects in abstract cognitive tasks, together with limited but systematic time reallocation across tasks. |
| Keywords: | AI at work, complementary technologies, task reallocation, productivity |
| JEL: | J24 O33 L23 C83 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13094 |
| By: | Zhiguo He; Yiming Qian; Xi Sun; Wang Renxuan |
| Abstract: | This paper studies how China uses access to public equity markets as an instrument of industrial policy. We find that policy-favored status, rather than industry Tobin's Q, predicts IPO activity, in contrast to the United States. The effect is economically large: our estimates imply that favored industries had 287% more IPOs and 148% higher IPO proceeds than non-favored industries over 2002 to 2022. We develop a framework to interpret these findings: the government shapes the number of listing opportunities available across industries, while market forces determine which firms obtain these opportunities based on firm fundamentals. Consistent with our framework, policy favor also predicts a valuation premium which persists after listing. |
| JEL: | G14 G18 G24 G32 G38 L52 O25 P16 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35889 |
| By: | Rodrigo Adão; Olivier Kooi |
| Abstract: | Governments invoke national security to regulate foreign acquisitions of domestic firms. Why is ownership regulation a distinct policy margin beyond standard tools, like production subsidies and trade taxes? We show that contractual frictions make multinational firm boundaries central to geoeconomic policy. Within firms, ownership allocates residual control that affects outcomes through non-contractible decisions. Between governments, the absence of enforceable agreements makes the economic costs of conflict shape geopolitical bargaining. Foreign ownership depends on private returns to foreign control, but also determines national exposure to geopolitical conflict. It can increase foreign dependence, technology transfer, or sabotage scope. If such margins were contractible, the government could regulate them directly. When they are not, ownership regulation is the second-best tool that changes control rights and, thus, geopolitical outcomes. Consistent with our mechanism, U.S. regulation emphasizes the national-security risks of foreign control over firm decisions, has tightened with rising geopolitical tensions, and is tighter in sectors with higher exposure to defense demand and contractual frictions. |
| JEL: | F1 F23 F5 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35958 |
| By: | Marco Francesconi; Xiaoyu Xia |
| Abstract: | Artificial intelligence (AI) may transform labor markets not only by changing workers' tasks but also by reorganizing production. We study radiology, where AI has spread rapidly without increasing interpretations per radiologist. In our model, AI facilitates outsourcing by letting hospitals verify the quality of remotely supplied interpretations. Using US Medicare data for 2013-2024, we document declining local radiology activity in smaller markets despite stable imaging demand. Interpretations shift toward larger markets, and radiologists at documented AI-adopting platforms end up serving more markets. AI can thus reshape firm boundaries and the geographic organization of professional work without replacing workers' tasks. |
| Keywords: | artificial intelligence, labor demand, technology adoption, task substitution, firm boundaries, outsourcing, radiology, health care |
| JEL: | J23 L22 L24 O33 I11 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13086 |
| By: | Cai, Xiaoming (Peking University HSBC Business School); Gautier, Pieter (Vrije Universiteit Amsterdam) |
| Abstract: | Search frictions normally raise the bar for sorting: both random and directed search require complementarities strictly stronger than the supermodularity that suffices in Becker's (1973) frictionless model. We introduce private information into this setting: firms post wages without observing worker productivity, while better workers have better outside options, creating a market for lemons (Akerlof 1970). We show that this information friction pushes sorting the other way: attracting high-productivity workers without attracting low-productivity ones requires a higher wage paired with a lower job-finding probability, so vacancies fill faster. This strict ranking of vacancy-filling rates sorts the market positively whenever output is complementary in worker and firm quality. Becker's condition therefore suffices once more, and private information makes positive sorting easier to sustain than complete information does. |
| Keywords: | competitive search, adverse selection, screening, sorting, positive assortative matching |
| JEL: | C78 D82 D83 J64 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18985 |
| By: | Dai, Li (Hunan University); Martins, Pedro (Universidade Nova de Lisboa); Duan, Wenjing (Hunan University) |
| Abstract: | How do local labour markets shape the employment effects of minimum wages? We evaluate this question using comprehensive manufacturing firm data and over 28, 000 hand-collected county-level minimum wages during China's market transition (1998-2007). We find that, consistently with monopsony models, the employment response to higher minimum-wage exposure becomes less negative as local employer concentration increases, with positive point estimates arising in highly concentrated markets in some specifications, particularly among domestic private firms. Higher minimum-wage exposure may also be associated with lower reported training expenditure and greater firm exit. Our findings indicate that the employment effects of minimum wages can depend critically on local market structures, highlighting the importance of geographical and institutional heterogeneity when assessing labour regulation in transitioning economies. |
| Keywords: | minimum wages, labour market concentration, employment, monopsony, China |
| JEL: | J31 J38 J42 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18994 |
| By: | Emma Wohl |
| Abstract: | Offers of health insurance vary significantly across firm and establishment characteristics, including firm size, workforce sex, and workforce age (Agency for Healthcare Research and Quality, 2024, Table I.A.2; Abraham et al., 2016). Low-wage workers in particular are less likely to receive health insurance from their employer, and employers tend to roll back benefits as minimum wages rise (Meiselbach and Abraham, 2023; Marks, 2011). This study aims to identify the effects by employer and workforce characteristics of minimum wage increases on employer-provided benefits using restricted-use data from the Medical Expenditure Panel Survey-Insurance Component (MEPS-IC). I use a two-way fixed effects approach, exploiting state legislation variation, to identify changes in the rates of employers offering health insurance and employer and employee characteristics associated with changes in health insurance offers. I study employer and employee characteristics for which minimum wage responses may differ due to differences in health insurance costs, impacts of the Affordable Care Act and other policies and legislation, and employee preferences for health insurance. I find that establishments alter offers of health insurance in response to the minimum wage differently based on firm size and workforce gender and age. Small firms drive reductions in health insurance offers as the minimum wage increases, and reductions are smaller among workforces with a greater share of female or older workers, who more highly value employer-provided health insurance. |
| Keywords: | minimum wage, employer health insurance |
| JEL: | J01 J3 I13 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:26-64 |
| By: | Manish Jha; Jialin Qian; Michael Weber; Baozhong Yang |
| Abstract: | Using generative AI, we extract managers’ economic expectations from over 120, 000 corporate conference call transcripts. The resulting AI Economy Score predicts GDP growth, production, employment, and wages five or more quarters ahead, beyond survey forecasts and other existing measures. Industry- and firm-level scores capture sector- and firm-specific activity, and a composite of firm, industry, and macroeconomic expectations further improves forecasting power and horizon. Predictability concentrates among historically more accurate, less biased managers, consistent with an information rather than a noise channel. Managerial expectations thus offer incremental insights into economic activity, with implications for macro- and microeconomic decision-making. |
| JEL: | C81 D2 E2 E3 E44 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35949 |
| By: | Pinelopi Koujianou Goldberg; Réka Juhász; Giulia Lo Forte; Jeff Thurk |
| Abstract: | We show that cross-border learning is an important feature of modern semiconductor manufacturing and that several important channels – such as knowledge sharing along global supply chains, the movement of engineers within multinational firms, and foreign direct investment – operate through market mechanisms rather than anonymous technological spillovers. These findings have significant policy implications. When cross-border learning is mediated by purposeful economic relationships, access to frontier knowledge is neither automatic nor guaranteed. Firms and governments can facilitate - or restrict - the international diffusion of technology, implying that policies to foster domestic technological upgrading are likely to be most effective when coupled with continued access to global sources of frontier knowledge. |
| JEL: | F50 F61 L63 N60 O30 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35879 |
| By: | Roger D. Blair (University of Florida); Javier D. Donna (University of Miami) |
| Abstract: | We analyze vertical mergers when the upstream and downstream markets each have a dominant firm and a competitive fringe. Adding a fringe at each stage of the successive monopoly model of Spengler (1950) generates the anticompetitive mechanisms of the post-Chicago literature. The merger eliminates double marginalization but creates incentives for input foreclosure, customer foreclosure, and fringe exit. Our main result links customer foreclosure to input foreclosure. When the merged firm sources internally, independent suppliers with high operating costs can exit. Their exit reduces the supply available to downstream rivals and, relative to retaining that capacity, raises the input price rivals pay and the merged firm’s foreclosure wedge. In an equilibrium construction, consumer prices remain below the pre-merger level. With atomless participation, consumer harm is ruled out under stated conditions; with indivisible downstream participation, it can arise. We derive implications for merger review under Section 7 of the Clayton Act. |
| Keywords: | Vertical mergers, double marginalization, input foreclosure, dominant firm and competitive fringe, raising rivals’ costs, non-predatory exit, antitrust policy |
| JEL: | L42 L13 L41 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:410 |
| By: | Matthew J. Higgins; Peter G. Klein; Anita McGahan; Rob Wuebker |
| Abstract: | Stakeholder theory asks who is in, who is out, and who gets what. Existing work illuminates important dimensions of firm–stakeholder relationships but does not supply a common, transaction-level rule connecting these questions. We use the Coase theorem to develop such a rule. A Coasian stakeholder is an actor with shutdown power, defined as the de facto capacity, within the relevant time horizon, to prevent, materially delay, or substantially reduce the expected joint value of a focal value-creating transaction. If all such actors are identified and bargaining and enforcement are costless, value-maximizing transactions proceed, although rights and bargaining positions may affect who captures value. When transaction costs are positive, however, identification, bargaining, coalition formation, and enforcement can delay, distort, or suppress those transactions. Across six propositions, we explain how shutdown power is identified and acquired, how complementarity and bargaining conditions shape value capture, how firms reshape stakeholder sets through coalition costs and governance design, and why consolidated opposition can sometimes preserve transactions that fragmented claims would suppress. |
| JEL: | D23 D86 L14 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35960 |
| By: | Andres Almazan; Nathan Swem; Sheridan Titman; Gregory Weitzner |
| Abstract: | We analyze firms’ IPO decisions using detailed financial data on US private firms. Firms with higher external capital needs are more likely to go public. Following the IPO, firms increase investment and debt issuance, leaving their leverage ratios un-changed from pre-IPO levels. Finally, newly public firms borrow from an expanded pool of lenders on improved terms, and the within-firm dispersion in banks’ private risk assessments declines. Our analysis suggests that firms go public to improve their access to capital, which is facilitated by reduced asymmetric information, and that the benefit extends beyond the IPO itself to new sources of debt. |
| JEL: | G21 G31 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35888 |
| By: | Paul A. Gompers; Henry Woo |
| Abstract: | Immigrant founders of US venture-backed startups exit successfully more often than native founders. Does this hold worldwide? Using career histories for 913, 226 founder-firm pairs in 213 countries (1990–2026), we compare founders who build abroad (expats) or return home after foreign experience (returnees) with comparable local founders in the same country. Both expats and returnees raise early funding more often globally. Expats' success premium, however, concentrates in the US (18 percent) and UK (26 percent), especially among those entering the US through graduate school, work, or direct founding. Returnees rarely show such a premium. Capital follows mobile founders across borders, but success follows them selectively. |
| JEL: | F22 G24 J24 J61 L26 J6 J60 J69 O57 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35943 |
| By: | Henry E. Siu; Kelly Foley; Guido Matias Cortes |
| Abstract: | Some occupations pay higher wages than others, even conditional on worker characteristics, implying that occupations can be ranked on a ladder. We develop a simple decomposition to study the role this occupational ladder plays in average wage growth and in the fanning out of wages over the life cycle. We present three main findings. First, the distribution of employment shifts towards higher-paying occupations as workers gain experience. This contributes modestly to average life-cycle wage growth, with greatest impact in early career. Second, this upward movement in the occupational employment distribution is not accompanied by increasing dispersion; thus, the occupational ladder does not directly contribute to the fanning out of wages. Third, early-career workers who are well-positioned on the occupational ladder tend to earn wages far below the occupational average. However, by mid-career, workers’ relative wages within occupations (their positions on the job ladder) no longer depend on their occupation. This change in the covariance between individuals’ positions on the job and occupational ladders is a major contributor to the fanning out of wages over workers’ careers. |
| JEL: | E24 J24 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35929 |
| By: | Norris Keiller, Agnes; Obermeier, Tim; Teichgraeber, Andreas; Van Reenen, John |
| Abstract: | To what extent do identical workers in an industry benefit from productivity growth in the same industry? We study this question in the context of the UK auto industry which experienced a thirteen-fold increase in output per worker between 1980 and 2018. Over the same period, auto workers saw substantially stronger hourly wage growth than workers in other manufacturing industries. Controlling for unobserved worker heterogeneity, the auto wage premium over other manufacturing workers doubled from 8% in the 1980s to 17% in the 2010s, while the manufacturing premium over the rest of the economy remained roughly stable at 5%. Interpreted through the lens of a rent sharing model, we estimate that 63% of the increase in the raw firm-level auto wage premium can be accounted for by strong productivity growth. In contrast, differential bargaining power between auto workers cannot account for these changes. |
| Keywords: | wages;productivity;auto industry |
| JEL: | J30 L10 L60 |
| Date: | 2026–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:141474 |
| By: | Nicholas Li (Department of Economics, Toronto Metropolitan University, Toronto, Canada); Raymond Morgan (Department of Economics, Toronto Metropolitan University, Toronto, Canada) |
| Abstract: | Canada’s remote northern communities have some of the highest food prices and food insecurity rates in the world and rely on a small number of retail and transportation firms. In 2017, the largest retailer in the region, the North West Company (NWC), acquired a regional airline and started transporting its own air freight to some of the “fly-in†communities it serves. Using a difference-in-difference design, we evaluate the effects of vertical integration on prices and shipment quantities of perishable foods. We find that after the acquisition, communities with vertically integrated retail-air freight experienced approximately 3.9% lower prices and 9.5% higher shipment quantities relative to comparison communities. Effects are qualitatively similar in communities where the acquisition changed firm boundaries without changing routes or upstream competition (Ontario) versus communities where it created new routes and competition (Manitoba and Nunavut). Estimated price reductions are larger in communities where NWC accounts for a smaller baseline share of subsidized shipments, while total shipments increase significantly in high-share communities. A theoretical model suggests that this could be due to greater “business-stealing†and lower share of sales exposed to marginal cost reductions in more competitive communities, and evidence from retailer-level shipments supports this interpretation. Our findings show that vertical integration can benefit consumers in markets with limited competition but that the size and nature of these benefits is sensitive to upstream and downstream market structure. |
| Keywords: | vertical integration; market structure; prices; air transportation; retail; Northern Canada; |
| JEL: | L12 L13 L81 L93 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:rye:wpaper:wp102 |
| By: | Mark L. Egan; Dominic Russel; Claire Shi; Vincent Yao |
| Abstract: | How competitive will the market for generative AI be as it matures? Using novel transaction level credit and debit card data covering 174 million consumers and 114 billion transactions, we study the adoption of paid services and the demand-side foundations of competition in this market. As of April 2026, approximately 2.9% of U.S. consumers pay for at least one major generative AI service, with adoption highest among younger and higher-income consumers. Nearly all of these paid users subscribe to basic plans that cost $30 or less per month. Three patterns suggest limited differentiation and low switching costs. First, although multihoming is common, it has declined as providers’ capabilities have expanded. Second, annual customer retention rates range from 20% to 45% across major AI providers, lower than those for many other subscription products. Third, switching rises around major model releases. Motivated by these findings, we develop and estimate a structural model of AI service demand and supply that reveals strong competitive pressure. Consumers are highly price sensitive, have much weaker preferences for particular providers than for AI overall, and view AI services as increasingly close substitutes. Our results suggest that, absent a substantial increase in AI model quality differentiation, growing substitutability among services will constrain providers’ pricing power and allow consumers to capture a large share of the surplus generated by these services. |
| JEL: | D12 L13 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35953 |