UK Competition Authority Investigates Competitive Concerns in AI Foundation Model Industry
The UK Competition and Markets Authority (CMA) has launched an investigation into the AI Foundation Model (FM) industry to address potential competitive issues. FMs, which are reusable models trained on vast amounts of data, have the potential to revolutionize various sectors such as healthcare, finance, and education.
Currently, the market for FMs seems to be functioning well, with approximately 160 models emerging since 2018. Unlike other markets dominated by network effects, FMs are not natural monopolies. The popularity of a specific FM does not necessarily hinder effective competition. However, the CMA acknowledges that user-generated data could become a crucial factor in the future, potentially leading to economies of scale and network effects. Switching between FMs is relatively cheap and easy at the moment, but certain characteristics of FMs could contribute to customer lock-in effects.
Despite the current positive market characteristics, there are concerns that incumbents in the industry, specifically large technology firms, have significant advantages in terms of data resources and computational power. Most FM providers rely on cloud providers like Google, Amazon, and Microsoft for computational capabilities. Developing alternative infrastructure requires substantial investment, which gives tech giants a significant advantage and raises concerns about future competition.
Furthermore, these big tech companies have access to proprietary data, which could give them a competitive edge. The exhaustion of public high-quality data resources could benefit companies with exclusive access to proprietary data. However, the CMA notes that the potential use of synthetic data generated by other FMs could provide a cheaper and accessible alternative.
Professor Jason Furman, author of the influential Furman Report, has highlighted similar concerns about the power dynamics in the FM industry. He suggests that the requirement for large amounts of data may not necessarily encourage competition from new entrants but could instead solidify the dominance of existing players.
While the downstream uses of FMs are yet to be fully realized, the potential for efficiency improvements across various industries is enormous. However, the cost of developing in-house tools limits many organizations, and they rely on FM licenses from developers.
The CMA also recognizes that the generality or specificity of FMs will play a role in the future competitiveness of the supply chain. Highly-specific FMs fine-tuned for specific tasks could foster innovation and competition, but if larger and more general FMs outperform specialized ones, the market could consolidate around a small number of models developed by the largest players.
Concerns arise when FM providers with substantial market power refuse or restrict access to their models to weaken their competitors. In such cases, interoperability measures become crucial to ensure fair competition.
To address the challenges in the FM industry, transparency, interoperability, and pro-competition policies and legislation are necessary. Mechanisms for data sharing and preventing bundling and exclusion can help level the playing field. Establishing an internationally recognized metric for comparing FM performance would facilitate navigation for startups and consumers.
Policymakers, as shown in the CMA report, are aware of these issues and draw lessons from the evolution of other technology markets. The emphasis on access, choice, and flexibility aligns with the need to support innovation and healthy competition in digital markets.
In Europe, proposed measures such as the EU Data Governance Act and the Digital Markets Act also aim to address similar concerns by promoting wider data transfer and requiring large search engines to share data.
By acknowledging the importance of competition, facilitating data sharing, and promoting interoperability, the FM industry can thrive and foster innovation while preventing the consolidation of power among a few dominant players.
