The AI Pricing Power Problem
Artificial intelligence is deflationary by nature — and markets haven't priced that in
Every company is simultaneously investing in AI and being disrupted by it. The net effect on margins is unknowable.
The bull case for artificial intelligence rests on productivity: AI will allow companies to do more with less, expanding margins and accelerating growth. The bear case inverts the same logic: if AI makes everyone more productive, then competitive advantages erode, pricing power declines, and the productivity gains accrue to consumers rather than shareholders.
Both cases are correct — for different companies at different times. The critical variable is whether AI creates differentiation or commoditization within a given industry.
Every company is simultaneously investing in AI and being disrupted by it. The net effect on margins is unknowable.
The Commoditization Thesis
In industries where AI enables new entrants to replicate incumbent capabilities — legal research, financial analysis, content creation, customer service — the technology is deflationary. Incumbents must adopt AI to maintain competitiveness, but the adoption itself erodes the barriers that protected their margins.
Where Pricing Power Survives
AI reinforces pricing power where it creates network effects, proprietary data advantages, or switching costs. The companies best positioned are those that use AI to make their products more embedded in customer workflows — not merely cheaper.