On Thursday, June 29, 2023, the United States Federal Trade Commission (FTC) expressed apprehension regarding competition in the generative artificial intelligence (AI ) industry. In a statement, the FTC emphasized the transformative potential of generative AI technology and highlighted the need to ensure fair and open competition to maximize its benefits. The commission outlined concerns about the control of essential inputs and potential anti-competitive practices in generative AI markets.
FTC defines building blocks and competition concerns in generative AI
The FTC highlighted that large and diverse datasets are crucial for developing generative AI models. Established companies with access to data collected over many years, particularly through digital platforms, possess an advantage over new entrants. Proprietary data collection tools and technologies reinforce this advantage. Specialized domains with regulated data, such as healthcare or finance, need help to acquire the necessary data. The control of data by certain companies could create barriers to entry and hinder fair competition.
The FTC stated, “The volume and quality of data required to pre-train a generative AI model from scratch may impact the ability of new players to enter the market.”
Developing generative AI requires a skilled workforce with expertise in machine learning, natural language processing, and computer vision. Acquiring and retaining talent becomes a significant challenge due to the scarcity of individuals with the required skill sets. Powerful companies may resort to non-compete agreements to hinder competition from potential rivals. The FTC emphasized the importance of allowing talented individuals to move freely and share innovative ideas to foster a competitive and innovative marketplace.
The FTC emphasizes the importance of allowing talented individuals with innovative ideas to freely move and not be hindered by non-compete agreements in order to ensure a competitive and innovative marketplace.
Possible unfair methods of competition
Incumbents in generative AI may leverage their existing core products to bundle or tie new generative AI applications, reducing the value of competitors’ standalone offerings and distorting competition. Also, companies with an ecosystem of products and services may engage in exclusive dealing or discriminatory behavior, favoring their own generative AI products over competitors. The ability of cloud computing companies, which provide both compute services and generative AI products, to limit competition in the computing market.
According to the FTC, there is a cautionary note that incumbents with a diverse product and service portfolio within an ecosystem could potentially resort to exclusive dealing or discriminatory behavior, directing users towards their own generative AI products while disadvantaging competitors.
Large firms active in generative AI or controlling critical inputs may attempt to consolidate market power through mergers and acquisitions. They could acquire critical applications, cutting off rival access to core products or bundle complementary applications together. Network effects, where generative AI products improve with increased user interaction, can lead to a concentrated market, making it difficult for new entrants to compete effectively. Platform effects, particularly in cloud services, may also contribute to the consolidation of market power.
The FTC explained, “Absent legal or policy intervention, network effects can supercharge a company’s ability and incentive to engage in unfair methods of competition.”
The FTC’s expression of competition concerns surrounding generative AI highlights the potential for concentration of power and anti-competitive practices in the field. The control of essential inputs, including data, labor expertise, and computational resources, could dampen fair competition and hinder the growth of this transformative technology. The FTC remains committed to enforcing competition laws and addressing unfair methods of competition to foster an innovative and competitive marketplace for generative AI development.
