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There's a middle area too between your options - a law firm that utilizes AI offers cheaper pricing than the current firms for the same work. Ideally competition will drive prices down but of course law doesn't have the benefit of do-overs on cases, so reputation still plays a big factor.

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That's the big question, how prices evolve if LLMs increase supply. Standard economic theory says that prices must collapse. There is probably still a short time of 2-5 years where AI native firms can pocket in quite some arbitrage but I guess markets will eventually figure it out and prices will collapse. This is not only for law. The same applies to all the other industries where LLMs can be used to automate work tasks.

I agree that prices will go down dramatically in occupations that primarily involve code, words, and numbers - and in general knowing the "rules". But there are so many occupations that will have to wait for AI to enter the physical realm. I also predict that the backlash will largely prevent that from occurring.

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