Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
The Emerging Market for Intelligence: How Firms Buy and Sell AI
Journal of Economic Perspectives
(pp. 23–46)
(Complimentary)
Abstract
We describe the emerging business-to-business market for large language model (LLM) inference and document key empirical patterns in its supply, pricing, and dynamics, using data from OpenRouter. First, supply has expanded rapidly: the number of commercially available models, model creators, and inference providers has grown sharply, driven heavily by open-source entrants. Second, the price of intelligence has fallen roughly a thousandfold, and open-source models now cost about 90 percent less than comparable closed-source ones. Third, the market is highly dynamic, with frequent turnover among leading models and creators. Fourth, we document substantial horizontal and vertical differentiation: no single model dominates across use cases, and demand for intelligence varies widely across applications. We place these patterns in historical perspective alongside earlier general-purpose technologies.Citation
Demirer, Mert, Andrey Fradkin, and Nadav Tadelis. 2026. "The Emerging Market for Intelligence: How Firms Buy and Sell AI." Journal of Economic Perspectives 40 (3): 23–46. DOI: 10.1257/jep.20261506Additional Materials
JEL Classification
- C45 Neural Networks and Related Topics
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L17 Open Source Products and Markets
- L22 Firm Organization and Market Structure
- L86 Information and Internet Services; Computer Software