Racing to Sustain Jevons' Paradox

There’s not enough AI. Jevons’ Paradox has been a hallmark of this era like Moore’s Law in chips. Will it fail early? We continue to be supply constrained, a sign of momentum & rapid adoption. — Sundar Pichai, Alphabet Q2 2026. 1 We will still not have enough capacity to meet all the demand we have in 2026, & I believe this dynamic will also be true in 2027 too. The demand we already have for 2028 is striking. — Andy Jassy, Amazon Q2 2026. 2 Blackwell sales are off the charts, & cloud GPUs are sold out. — Jensen Huang, NVIDIA Q1 FY2027. 3 So what happens if the price of AI doubles? They’re already increasing. Anthropic launched Fable 5 on July 24 at $50 per million output tokens, doubling Opus 5 & setting a new frontier ceiling. Google’s Gemini flagship climbed from $1.50 to $12 across four generations. 4 Or at least most are increasing. OpenAI cut GPT-5.6 Luna prices by 80% five days after Fable 5’s launch, either a market-capture push or a fundamental cost breakthrough. 5 The pitch so far from AI : Jevons’ paradox drives more consumption as prices fall. But prices are increasing. AI labs are betting on segmentation. As long as the value & mid-market frontiers absorb the workloads priced out of premium, total GPU-hours consumed keeps growing. Segmentation sustains Jevons. The premium tier costs 13x the value tier for a fifth more intelligence. The mid-market frontier is the new arrival : GPT-5.6 Sol & Kimi K3, delivering 96% of frontier intelligence at 40% of the cost. 6 7 The value frontier runs from GLM-5.2 down to DeepSeek V4 Flash, offering 84% of the intelligence at 1 to 5% of the premium cost. As segmentation becomes the norm, routers become the strategic layer between buyer & model, the plumbing that lets an application shift a query to the right model. Routers will be internal to models, external in customers’ software, & in harnesses. The major labs each need entries in all three tiers, or they lose the router auction on price. Startups win by owning a single point on the frontier that a big lab cannot economically match. DeepSeek V4 Flash at $0.03 is the existence proof. All in furtherance of Jevons. Alphabet Q2 2026 earnings call, Sundar Pichai remarks , July 22, 2026.  ↩︎ Andy Jassy said Amazon will spend $220 billion this year and still won’t have enough capacity to meet demand , Fortune, July 30, 2026.  ↩︎ NVIDIA Q1 FY2027 earnings: revenue, EPS & outlook , May 20, 2026.  ↩︎ AI Model Inflation . Vendors are pivoting from share-taking subsidies to margin-taking pricing as capex hits records.  ↩︎ GPT-5.6 pricing effective July 30, 2026 : Sol at $5/$30, Luna at $0.20/$1.20 per million tokens. OpenAI GPT-5.6 price-performance frontier announcement ; VentureBeat : OpenAI cuts GPT-5.6 Luna prices by 80% .  ↩︎ Artificial Analysis Intelligence Index v4.1 accessed 2026-08-04.  ↩︎ Mid-market average of GPT-5.6 Sol & Kimi K3 intelligence (58) versus premium average of Opus 5 & Fable 5 (60.5) = 96%. Cost ratio $1.05 / $2.75 = 38%.  ↩︎