The Emerging Market for Intelligence: How Firms Buy and Sell AI

Mert Demirer, Andrey Fradkin and Nadav Tadelis

Journal of Economic Perspectives, 2026, vol. 40, issue 3, 23-46

Abstract: We describe the emerging business-to-business market for large language model (LLM) inference and document key empirical patterns in its supply, pricing, and dynamics, using data from OpenRouter. First, supply has expanded rapidly: the number of commercially available models, model creators, and inference providers has grown sharply, driven heavily by open-source entrants. Second, the price of intelligence has fallen roughly a thousandfold, and open-source models now cost about 90 percent less than comparable closed-source ones. Third, the market is highly dynamic, with frequent turnover among leading models and creators. Fourth, we document substantial horizontal and vertical differentiation: no single model dominates across use cases, and demand for intelligence varies widely across applications. We place these patterns in historical perspective alongside earlier general-purpose technologies.

JEL-codes: C45 L14 L17 L22 L86 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/jep.20261506

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