tech
AI prices are plunging. That feels bad, but something else is happening.
After OpenAI slashed AI model prices, it boosted usage and revenue, illustrating Jevons Paradox where cheaper costs drive higher consumption.
TL;DR
- OpenAI reduced prices for its GPT-5.6 Luna model by 80% and Terra model by 20%.
- Following the price cuts, AI usage dramatically increased.
- TD Cowen analysts observed that usage jumped significantly more than prices fell, leading to increased revenue for OpenAI.
- This outcome illustrates Jevons Paradox, where increased efficiency and lower costs of a resource lead to higher overall consumption.
- The trend suggests that as AI becomes cheaper, its application in various tasks becomes more economically viable, expanding its market.
- The falling cost of producing AI tokens is expected to further drive down AI prices and increase usage.
- While early, the data suggests that cheaper AI leads to more usage and potentially higher revenue.