NBER: Only 2.9% of US consumers pay for AI; retention as low as 20%, pricing power at risk
avicgoldfarb · x · 2026-10-26
NBER Working Paper 35953, "Competition in Generative AI: Evidence from Consumer Demand" (Egan, Russel, Shi, Yao), uses card transaction data covering 174 million consumers and 114 billion transactions to study competition in paid generative AI.
Key findings:
- As of April 2026, 2.9% of US consumers pay for at least one major generative AI service, skewed young and high-income; nearly all subscribe to basic plans at $30/month or less.
- Three patterns suggest limited differentiation and low switching costs: multihoming declines as providers' capabilities expand; annual retention ranges 20%-45% across providers, below most subscription products; switching spikes around major model releases.
A structural demand model shows consumers are highly price-sensitive, prefer AI overall far more than any specific provider, and view services as close substitutes. Absent a substantial increase in quality differentiation, substitutability will constrain pricing power and let consumers capture most of the surplus.
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