← All IntelClip / AI ToolsOligopoly pricing and the gas-station economics of model pricing
From Notion's Token Town — Sarah Sachs, Notion · ≈10:48
“I mean, it's functionally an oligopoly, right?”
“If you're slightly behind that best model, all you need to be is like a dollar per million tokens cheaper and you have the rest of the market.”
“It's the same with model pricing, which means that price does not correlate with capability growth.”
What’s in it
- Explains why frontier AI labs behave like a pricing oligopoly
- Uses gas-station economics to explain how model pricing actually works
- Argues price and model capability growth don't actually correlate
Clip transcript
are. And then think about how Frontier Lab model providers are structured today. I mean, it's functionally an oligopoly, right? And that's fine because they're racing to the top. And I think the top is really hard and really important. This is not to say that products don't have a place for frontier difficult tasks. I want everyone to nod and understand that's not what this talk is about. Understand when you need those tasks and it's not everything. The problem with those tasks are is keep in mind how pricing is incentivized. You can figure out who these players are. Either you are the best model. Everything above what AI can't do today is your market. You can basically price it as high as you kind of want. If you're slightly behind that best model, all you need to be is like a dollar per million tokens cheaper and you have the rest of the market. You know that economic theory about gas stations where the best gas stations are the ones that are right next to each other because they cover east and west the most. Yeah. It's the same with model pricing, which means that price does not correlate with capability growth.
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