The Influence of Generative AI on Content Platforms: Supply, Demand, and Welfare Impacts in Two-Sided Markets

Abstract: This paper explores how generative AI affects online platforms where both human creators and AI generate content. We develop a model to understand how generative AI changes supply and demand, impacts traffic distribution, and influences social welfare. Our analysis shows that AI can lead to a huge increase in content supply due to its low cost, which could cause oversupply. While AI boosts content variety, it can also create information overload, lowering user satisfaction and disrupting the market. AI also increases traffic concentration among top creators (the "winner-takes-all" effect) while expanding opportunities for niche content (the "long-tail" effect). We assess how these changes affect consumer and producer benefits, finding that the overall impact depends on the quality of AI-generated content and the level of information overload. Through simulation experiments, we test policy ideas, such as adjusting platform fees and recommendations, to reduce negative effects and improve social welfare. The results highlight the need for careful management of AI's role in online content platforms to maintain a healthy balance