Economics of AI diffusion: when free entry means too much or too little
Afinetheorem · x · 2026-09-13
Drawing on discussions by Tao and others, the author applies industrial organization economics to AI diffusion, offering three claims:
- Free entry with fixed costs leads to excessive entry when producing new varieties
- Free entry with lower costs is generally efficient
- Free entry for tools with spillover complements results in too little entry
The author argues these results offer useful insight into how AI tools spread.
Related event: Economists Apply Industrial Organization Theory to AI Diffusion(2 posts)→
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