The Jevons paradox cuts both ways

The paradox has been a popular trope to reassure those concerned about AI taking jobs - that whilst AI would deliver efficiency savings, this would lead to an explosion in demand as prices fell; keeping everyone gainfully employed

It's certainly plausible in some pockets of legal services, for example it's feasible that Garfield AI's very low cost to pursue sub-£10,000 debts creates demand for legal services that did not exist for chasing low value claims previously

In other areas, it's questionable. If conveyancing gets (even!) cheaper with AI, does that lead to an exponential increase in buying/selling houses? Seems a stretch...

But the Jevons paradox also applies to the costs of AI itself, this in time in reverse

For the past ~3 years we've seen an explosion in demand for AI but, without detracting from the technology, that explosion has been driven in large part by heavy VC subsidisation of the end-user cost of using the tools

The intent behind the low pricing is to gain market share to then increase prices once the competition's given up and gone home

But I think the fundamental problem here is that there are too many well funded frontier models, with no meaningful differentiation in capability, and the market shake out is costing too much and taking too long

It feels like we're entering an awkward phase where Anthropic and OpenAI deparately need to increase prices to justify IPO valuations in the coming months, but are still trapped in the penetrative pricing paradigm fighting for market share

They can't afford to raise their prices, they can't afford not to, and I'm not convinced Moore's Law is going to save them

Assuming the need for profit ultimately wins out (which the accountant in me believes it will) and prices increase, surely demand falls?

On the plus side we may see better engineering and discipline around using cheaper models, or (heaven forbid) not-AI solutions, to tackle problems going forward. But I struggle to see how increased prices doesn't have an overall chilling effect on demand for GenAI tools

Flippantly, my kids demand for GenAI cat videos is seemingly infinite, but it collapses to zero when I start docking their pocket money

Jevons Paradox cuts both ways