AI Adoption in a Monopoly Market

Joshua Gans

No 29995, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The adoption of artificial intelligence (AI) prediction of demand by a monopolist firm is examined. It is shown that, in the absence of AI prediction, firms face complex trade-offs in setting price and quantity ahead of demand that impact on the returns of AI adoption. Different industrial environments with differing flexibility of prices and/or quantity ex post, also impact on AI returns as does the time horizon of AI prediction. While AI has positive benefits for firms in terms of profitability, its impact on average price and quantity, as well as consumer welfare, is more nuanced and critically dependent on environmental characteristics.

JEL-codes: D21 D81 O31 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-big, nep-cmp, nep-com, nep-ind and nep-reg
Note: PR
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