How competitive will the market for generative AI be as it matures?

How competitive will the market for generative AI be as it matures? Using novel transaction level credit and debit card data covering 174 million consumers and 114 billion transactions, we study the adoption of paid services and the demand-side foundations of competition in this market. As of April 2026, approximately 2.9% of U.S. consumers pay for at least one major generative AI service, with adoption highest among younger and higher-income consumers. Nearly all of these paid users subscribe to basic plans that cost $30 or less per month. Three patterns suggest limited differentiation and low switching costs. First, although multihoming is common, it has declined as providers’ capabilities have expanded. Second, annual customer retention rates range from 20% to 45% across major AI providers, lower than those for many other subscription products. Third, switching rises around major model releases. Motivated by these findings, we develop and estimate a structural model of AI service demand and supply that reveals strong competitive pressure. Consumers are highly price sensitive, have much weaker preferences for particular providers than for AI overall, and view AI services as increasingly close substitutes. Our results suggest that, absent a substantial increase in AI model quality differentiation, growing substitutability among services will constrain providers’ pricing power and allow consumers to capture a large share of the surplus generated by these services. We thank Toren Fronsdal, Sam Hanson, Richard Ruback, Jesse Shapiro, and Adi Sunderam, and seminar and conference participants at Harvard Business School for helpful comments. Vincent Yao is an unpaid member of the Fiserv Advisory Council and a paid consultant. Mark Egan is an unpaid member of the Fiserv Advisory Council. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. For the research that resulted in “Competition in Generative AI: Evidence from Consumer Demand,” I attest to the following:I work at Fiserv Inc. as a paid consultant. Fiserv has no role in the design of the study, the analysis, the interpretation of the results, the writing of the paper, the decision to publish, and did not review or approve the content of the paper. In addition toworking papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—theNBER Reporter, theNBER Digest, theBulletin on Health, theBulletin on the Economics of Alzheimer's, and theBulletin on Entrepreneurship—as well asresearch spotlights, lectures, and panel videos.