Pandora Box or Golden Fleece: Economic Analysis of Generative AI Adoption on Creation Platforms

In this paper, we employ a game-theoretic approach to analyze the impact of adopting generative AI tools on various market outcomes, including creators’ creativity level and pricing strategies, the platform’s regulatory strength, and consumer welfare. Our results show that although generative AI tools can facilitate content creation by leading to a higher quality, creators’ creativity levels and prices may experience a decline compared to the regime without such tools. We also find that even though generative AI has the potential to improve content quality, it is not always true that the utilization of such tools can lead to higher consumer welfare. Moreover, we find that the platform opts for a relatively low regulatory strength when the AI intelligence is relatively small. Interestingly, as generative AI acquires a more extensive knowledge base, the platform and creators may be less willing to adopt it.