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Artificial Intelligence and its Effect on Competition and Factor Income Shares

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  • von Maydell, Richard

Abstract

We examine the impact of self-learning Artificial Intelligence (AI) on firm competition in a growth model with endogenous labor supply and heterogeneous agents. AI possesses the ability to improve autonomously through application, testing, and training. When firms incorporate AI into their production processes, they incur variable costs for acquiring the necessary software as well as fixed costs for installing AI infrastructure. The latter indeed drive productivity increases and economic growth but can also serve as an entry barrier for competing firms. Therefore, we examine how the rise of AI affects market concentration, firm competition, firm productivity and income inequality. We discuss potential policy interventions such as a profit tax or the modernization of competition and merger laws to prevent a significant increase in market concentration and income inequality within AIintensive industries and to foster economic growth.

Suggested Citation

  • von Maydell, Richard, 2024. "Artificial Intelligence and its Effect on Competition and Factor Income Shares," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277654, Verein für Socialpolitik / German Economic Association, revised 2024.
    • Handle: RePEc:zbw:vfsc23:277654
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    More about this item

    Keywords

    Markups; Artificial Intelligence; Imperfect Competition; Competition Policy; Factor Income Shares;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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