Abstract
AI is widely expected to enhance markets and diminish the economic significance of human relationships. Contrary to this belief, this essay asserts that this will not be the case in strategic industries. The paper outlines three nested barriers to entry based on tacit knowledge, incomplete contract theory, and transaction cost economics. The outermost barrier relates to the power to define what constitutes meaningful data, as exemplified by TSMC’s 93,000 certified IPs, representing over three decades of failed tape-outs and agreements made through discussion, all of which cannot be accessed through the use of an AI algorithm. The second barrier is connected to the ineffectiveness of complete contracting in the event of high asset specificity and uncertainty, as was the case in lithium supply agreements during the 2021-2022 price spike. These two barriers are nested within each other: having been granted legal access to a network does not guarantee concrete access to vital assets, as it is not possible to instantly buy trust. AI has made the codifiable aspects of service provision to come close to zero marginal costs but has increased the value of the uncodifiable, including issues such as the importance of judgment, accountability, and the shared experience of challenges between individuals. This will lead to human relations becoming increasingly important. Nonetheless, AI will reduce the costs involved in coordinating with other parties.
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