Paper Type

ERF

Abstract

Artificial Intelligence (AI) is increasingly embedded in digital platforms, yet its implications for core–periphery dynamics remain unclear. We define AI core expansion as the migration of functionalities previously offered by third-party applications into the platform core and examine this shift through Apple’s introduction of Apple Intelligence, which extends generative AI capabilities directly into the operating system. Drawing on the profiting-from-innovation (PFI) framework, we study how core expansion affects the periphery’s demand and innovation dynamics. Using a biweekly panel of 15,005 U.S. iOS apps and two-way fixed effects difference-in-differences models, we compare AI apps to non-AI apps around the rollout. We find that core expansion reduces both demand and innovation (measured by update activity) among AI apps. However, among apps that continue updating, marginal demand returns increase significantly. Thus, while core expansion dampens average innovation incentives, it strengthens rewards for persistent innovators. Our findings offer important theoretical and practical insights.

Paper Number

1287

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Aug 15th, 12:00 AM

Impact of AI Core Expansion on Platform’s Innovation–Demand Dynamics

Artificial Intelligence (AI) is increasingly embedded in digital platforms, yet its implications for core–periphery dynamics remain unclear. We define AI core expansion as the migration of functionalities previously offered by third-party applications into the platform core and examine this shift through Apple’s introduction of Apple Intelligence, which extends generative AI capabilities directly into the operating system. Drawing on the profiting-from-innovation (PFI) framework, we study how core expansion affects the periphery’s demand and innovation dynamics. Using a biweekly panel of 15,005 U.S. iOS apps and two-way fixed effects difference-in-differences models, we compare AI apps to non-AI apps around the rollout. We find that core expansion reduces both demand and innovation (measured by update activity) among AI apps. However, among apps that continue updating, marginal demand returns increase significantly. Thus, while core expansion dampens average innovation incentives, it strengthens rewards for persistent innovators. Our findings offer important theoretical and practical insights.

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