Washington – Generative AI prices are plunging, market leaders keep getting overtaken, and startups are capturing most new application revenue, as shown in a new report from RBB Economics prepared for the Computer & Communications Industry Association (CCIA). The report evaluates competition across the AI stack through October 2026 and finds that the evidence is consistent with effective competition in a dynamic and innovative sector and concludes that vigilance is preferable to broad, pre-emptive regulatory intervention.
Among the study’s key findings:
- AI is getting dramatically cheaper: Stanford’s AI Index recorded a more than 280-fold decline in the cost of GPT-3.5-level performance in two years, a more than 99% decline. The price of GPT-4-level performance fell from about $20 per million tokens in late 2022 to roughly $0.40 by the end of 2025, a 98% drop.
- Nobody holds the lead for long: The top spot on a widely followed coding leaderboard changed hands 13 times in 22 months. More than 90 models from 28 different firms launched in 2025 alone.
- Startups are winning: Startups captured about 63% of AI application revenue in 2025, up from 36% a year earlier. At least ten AI products now exceed $1 billion in annual recurring revenue, many from companies that did not exist three years ago.
- Customers shop around: Nearly eight in ten companies (78%) use two or more model families, and 59% use three or more.
- Market positions shift fast: On one major developer gateway, the combined usage share of the three largest U.S. model developers fell from about 72% to 29% in a single year (June 2025 to June 2026) as new rivals gained ground.
- America leads the world: U.S. private AI investment reached $285.9 billion in 2025, more than 23 times China’s total. The United States had 1,953 newly funded AI companies in 2025, compared with 161 in China.
The following quote may be attributed to Trevor Wagener, who serves as CCIA’s Chief Economist and Director of the CCIA Research Center:
“AI prices are plunging, the lead keeps changing hands, and startups are taking most of the enterprise AI application revenue. The evidence points to a dynamic, competitive AI sector that is working for American consumers and businesses, in which America is out-investing China 23 to 1.”
