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Artificial intelligence adoption in a monopoly market

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  • Joshua S. Gans

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.

Suggested Citation

  • Joshua S. Gans, 2023. "Artificial intelligence adoption in a monopoly market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1098-1106, March.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:2:p:1098-1106
    DOI: 10.1002/mde.3734
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    References listed on IDEAS

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    1. Agrawal, Ajay & Gans, Joshua S. & Goldfarb, Avi, 2024. "Prediction machines, insurance, and protection: An alternative perspective on AI’s role in production," Journal of the Japanese and International Economies, Elsevier, vol. 72(C).

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