The Shadow Price of Intelligence: Quality Degradation in LLM Inference as a Supply Chain Problem
Large language model providers are compute constrained, and a common response to congestion is to degrade service. A degraded answer fails with some probability, and a failed answer either returns as a retry or departs as churn, destroying LTV on an unaccounted ledger. We model inference allocation as a newsvendor whose stockout cost is churned lifetime value, a geometric retry multiplier in which the recycled product is dissatisfaction, and a two-regime transient fluid queue whose arrival rate is made endogenous by retries. Statically, there is a regime in which a cheaper model saves energy per initiated task while consuming strictly more capacity per initiated task, so the discount inve...
| Authors | Elioth Sanabria |
|---|---|
| Primary category | math.OC |
| Published | 25 August 2026 |
| Last updated at source | 7 October 2026 |
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