The Effect and Mechanism of Artificial Intelligence Applications on Enterprise Market Power in China

Abstract

This study employs the establishment of China's national new-generation AI innovation pilot zones as a quasi-natural experiment. Using data from A-share listed companies between 2006 and 2024, it conducts a systematic examination using a staggered difference-in-differences model. Our estimates indicate a robust positive causal effect of AI pilot zones on firm markups. Mechanism tests suggest that the policy works primarily through talent agglomeration and innovation incentives. Heterogeneity analysis indicates that the policy has a more pronounced impact on manufacturing, private enterprises, high-tech firms, and companies in eastern regions. Case studies further highlight three firm-level AI application pathways: technology-driven adoption, manufacturing-service integration, and data-driven product innovation. Based on these findings, the study recommends strengthening regional coordination to bridge the digital divide, guiding enterprises to adopt tailored strategies to explore AI integration pathways suited to their specific contexts, and refining the competition policy framework to balance innovation incentives with market fairness.