Product line design in the presence of generative AI technology

With the boom in economic growth, technology has emerged as a nonnegligible factor in driving productivity and innovation. Generative artificial intelligence (GAI), as a representative of disruptive technological innovation, has reshaped traditional manufacturing processes and opened up a field of possibilities. This paper analyzes the practice of GAI technology in the production process and explores its interaction with product line design under two predominant distribution contracts. We focus on technological innovation factors, such as the impact of GAI technology on product popularity and the probability of a successful GAI-assisted design, and find that the effect of GAI technology on product popularity exhibits a non-monotonic relationship with both product quality and firm profit. Our work also demonstrates that a longer product line could incentivize the supplier to adopt GAI-assisted product design under both agency and wholesale contracts. We also show that GAI technology motivates the supplier to extend its product line. Finally, our extended analysis examines distribution contract choices in the presence of GAI technology and reveals that the platform favors an agency contract over a wholesale contract when the commission rate is either relatively low or high, the impact of GAI technology on product popularity is low, the probability of a successful GAI-assisted design is high, and the product line extension fee is moderate.