Agenda

AUTORITÉ DE LA CONCURRENCE – OPINION ON GENERATIVE AI

05/07/2024

The French competition authority Autorité de la concurrence (“Autorité”) has issued its opinion on the competitive dynamics of the generative AI sector which explains the possible competition risks that may arise and recommendations to these risks. Autorité's opinion focuses on strategies by major digital companies to consolidate their market power in the generative AI value chain. It also examines potential barriers to entry for smaller undertakings.

Autorité explains in its opinion that generative AI sector has high barriers to entry:

  • Firstly, developing foundation models in the generative AI sector requires significant computing power, typically provided by specialized AI chips such as GPUs from Nvidia or AI accelerators from companies like Google. These resources are not only expensive but also in high demand, making them a substantial barrier to entry for new players in the market.
  • Secondly, cloud services play a crucial role in the generative AI ecosystem. Accessing the necessary computing power and distributing AI models are primarily facilitated through major cloud platforms like Amazon Web Services (AWS), Google Cloud Platform (GCP), and Microsoft Azure, which are in dominant positions in their markets. According to Autorité, the dependence on these cloud services further raises the entry threshold for emerging companies.
  • Thirdly generative AI models need vast amounts of data, which are primarily sourced from public domains. However, there are growing concerns about the future availability of such data and legal issues related to data usage, potentially complicating the data acquisition process for new entrants.
  • Fourthly, the development of AI models necessitates advanced data science skills, including expertise in machine learning and deep learning. According to Autorité these skills are rare and highly sought after, which adds another layer of difficulty for new undertakings trying to break into the sector.
  • Finally, significant financial investment is required in the generative AI sector. This financial requirement also acts as a barrier to entry for startups and smaller companies.

Autorité explains that in addition to these entry barriers, major digital companies have other competitive advantages in the generative AI sector. Since these companies have better access to computing power, data and skilled workforce Autorité believes that they have a significant edge over their competitors. Moreover, their integration across the value chain allows them to leverage economies of scale and scope and to integrate AI tools into their ecosystems, which can further consolidate their dominant positions.

Autorité also examines the possible competition risks that can arise in markets related to generative AI sector. According to Autorité;

  • Chip providers could abuse their position by price fixing, production restrictions and unfair contractual conditions.
  • Cloud service providers could offer high levels of cloud credits to startups and create technical barriers to migration.
  • Restrictive access to data can disadvantage smaller players and restrictive access to skilled workforce could lead to practices like wage fixing and no-poaching agreements.
  • Vertical integration could lead to abusive practices such as denying access to necessary inputs for training AI models and tying sales of products to their own AI solutions.

Autorité provides several recommendations in its opinion to address these competitive concerns. According to Autorité, to make the regulatory framework for generative AI more effective, the Commission should consider designating companies providing Model-as-a-Service (MaaS) as gatekeepers under the Digital Markets Act (DMA) to prohibit problematic behaviors proactively. At the French level, the Directorate General for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) should monitor the use of cloud credits in AI. The future AI Office and national authorities should ensure that the AI Act does not hinder small operators or allow large operators to misuse the regulations. According to Autorité, international coordination is also essential to prevent distortions and additional costs for companies.

(Autorité de la concurrence – 28.06.2024)

 

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