Research Highlights

The AI Effect: How Artificial Intelligence is Shaping the Economy

Hanna Halaburda

Overview: In the essay “The Business Revolution: Economy-Wide Impacts of Artificial Intelligence and Digital Platforms,” NYU Stern Professor Hanna Halaburda, with co-authors Jeffrey Prince (Indiana University), D. Daniel Sokol (USC Marshall), and Feng Zhu (Harvard University), explore themes around digital business transformation and review the impact of artificial intelligence (AI) and digital platforms on specific aspects of the economy: pricing, healthcare, and content.

Why study this now: During the past three decades, business has been transformed from its leveraging of technological advances. The application of this technology has shifted organization value from tangible goods to intangible assets, and from production happening within a company to a dynamic where third parties are instead creating much of the value. The authors of this essay call attention to the overarching effects of AI on business as well as highlight more specific impacts of AI and digital platforms within certain industries.

What the authors spotlight: While AI has the potential to change the way companies work (e.g., increase labor productivity, improve decision-making), its potential for harm should not be overlooked. The authors also shine light on some of the positive and negative effects of AI and digital platforms on certain elements of the economy:

  • Pricing: AI pricing algorithms can increase the ability for dynamic pricing, but also may learn to collude over time (even if not explicitly programmed to).
  • Healthcare: AI may improve health outcomes for certain diagnoses (e.g., cancer detection, heart disease), but trust in the technology is a major consideration from both the patient and staff sides in terms of adoption.
  • Content: Digital technologies have disrupted aspects of industries like music, movies, and books (e.g., reduced costs of distribution, increased differentiation), but challenges like piracy and antitrust concerns exist. 

Furthermore, the authors discuss the potential for mergers and acquisitions to help companies navigate the numerous changes and challenges that digital technology brings.

What does this change: The authors note that we are in the early stages of the digital business revolution, and that there is growing interest in using empirical research to study digital platforms. They also see an increase in transformations from B2B industries.

Key insight: “The digital business revolution has made existing routines more efficient,” say the authors, “and it has created opportunities to rethink how firms and the economy are organized.”