Intelligent Growth

The effects of AI on firms and industries

Large robot offering glowing orb to two people.

Artificial intelligence technologies perform myriad business tasks, including targeting online ads, making predictions, and assessing risk. But which companies have benefited most from AI’s emergence—and has it affected economic growth and firm productivity more broadly?

In examining those questions, Berkeley Haas Assistant Professor Anastassia Fedyk and co-authors found that firms that invested more in AI technology increased sales and employment, leading to higher levels of industry concentration.

As for economic growth, companies investing more in AI technology had higher growth rates from 2010 to 2018. They found that firms with a one standard deviation increase in the share of AI workers experienced an additional 15% growth in sales, and, interestingly, a 13% increase in employment—assuaging some concern that AI technology would replace jobs.

“Superstar” firms, those with larger market shares, higher cash reserves, and greater use of R&D, were more likely to invest in AI. Because AI relies on big datasets, it’s possible that larger firms benefit from this technology as they can more efficiently tailor products to different consumers.

Unlike the adoption of robots, which other researchers have found increases employment at the firm level but decreases employment at the industry level, Fedyk found that the firm-level benefits from AI aggregated into industry-level growth in sales and employment. In other words, firms benefitting from AI did not do so at the expense of other companies within the industry.

The researchers’ findings were driven by firms that were already larger and more productive before the adoption of AI. For instance, the largest third of companies increased sales by 17%, while the smallest third of companies saw no increase at all. Moreover, these large firms simultaneously expanded into new geographic and product markets. Thus, the new AI technology helped the most productive firms scale more efficiently, the researchers say.

“We see that by facilitating the rise of the ‘superstar’ firms, the new technology is leading to increases in industry concentration,” Fedyk says. This is not necessarily a bad thing, she notes, as more market share is being allocated to more productive firms.

Despite this AI-fueled expansion, there was no evidence that AI-adopting firms increased their output-per-worker or were able to charge higher markups on their products as a result of the technology. However, the researchers cautioned that such productivity gains may take some time to materialize.

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