On Apr. 11, UK CMA issued paper on key risks to effective competition.
CMA outlines growing concerns in markets for AI foundation models, outlined in in CEO speech and update paper, as the market continues to develop at a whirlwind pace.
Follows UK CMA May 2023 initial review of AI foundation models use, see #171744.
Follows UK CMA Sep. 2023 proposed principles to guide AI markets, see #185078.
AI Foundation Models Update Paper
CMA 2024 initial report on AI Foundation Models (FMs) proposed a set of principles to help sustain innovation, guide these markets toward positive outcomes for all.
The regulator is concerned some firms may have the ability and the incentive to shape these markets in their own interests, to protect existing market power and extend it.
Could profoundly impact fair, open, and effective competition in FM-related markets, ultimately harming businesses and consumers, e.g. by reduced choice, lower quality, higher prices, stunting flow of potential innovation, wider economic benefits from AI.
The update paper identifies an interconnected web of more than 90 partnerships and strategic investments involving the same firms: Google, Apple, Microsoft, Meta, Amazon, and Nvidia - which is the leading supplier of AI accelerator chips.
UK CMA recognizes the huge wealth of resources, expertise and innovation capability these large firms can bring to bear, and the role they will likely have in FM markets.
Noted these partnerships, arrangements can be pro-competitive in tech ecosystem.
CMA CEO Speech
Sarah Cardell, CMA CEO, at 72nd Antitrust Law Spring Meeting in Washington DC, highlighted transformative promise of FMs as potential paradigm shift for societies and economies; outlined a range of fast-moving developments across FM markets.
This, and CMA’s deepening understanding of FM ecosystem, increased CMA concerns.
Pointed to growing presence in FM markets of small number of incumbent technology firms which already hold positions of market power in important digital markets.
The firms have strong positions in both the development of FMs - including through the supply of critical inputs like compute, data, and talent - and in the deployment of models, through key access points or routes to market, like apps and platforms.
CMA Caution
UK CMA cautions powerful partnerships, integrated firms should not reduce rival firms’ ability to compete, nor be used to insulate powerful firms from competition.
Maintaining market diversity, choice is also vital for safeguarding against risk of over-dependence on a handful of major firms - particularly considering breadth of potential use for FMs across all economic sectors, e.g. finance, healthcare, education, retail, etc.
Benefits of AI for businesses, consumers much more likely to be realized where the most powerful technology firms are subject to fair, open, effective competition.
Both from potential challengers and between themselves, rather than where they can leverage FMs to further entrench, extend existing positions of power in digital markets.
In her speech, Cardell said UK CMA is determined to apply the lessons of history at this pivotal moment in the emergence of a new, potentially transformative technology.
3 Key Risks
CMA noted 3 key risks to fair, open, effective competition: first, firms controlling critical inputs for developing FMs may restrict access to shield themselves from competition.
Powerful incumbents could exploit positions in consumer or business facing markets to distort choice in FM services, restrict competition in deployment; risk partnerships of key players could exacerbate existing positions of market power through value chain.
Update paper sets out how each risk would be mitigated by its principles, and actions CMA is taking now, and considering taking in near future, to address these concerns.
Includes existing measures, like market investigations and merger review, but also consideration of developments in FMs as UK CMA decides which digital activities to prioritize for investigation under the Digital Markets, Competition and Consumers Bill.
Speech also highlighted examples of current relevant work, e.g. CMA’s ongoing cloud services market investigation, with forward-looking assessment of potential impact of FMs on competition in cloud services (#186967); and review of Microsoft’s partnership with OpenAI to understand how it may affect competition in the ecosystem (#194177).
Apr. 16, 2024 Technical Update Report Published
On Apr. 16, 2024, UK CMA published technical update report outlining feedback received and relevant market developments that relate to each of CMA's principles.
Includes more detail on market developments since initial report; feedback from stakeholders; overview and discussion of key changes in FM sector since initial report.
Confirms final principles to guide market to positive competition, consumer protection.
Sets out risks to competition, consumer protection, including 3 key risks to fair, open, effective competition, assesses how they would be mitigated by UK CMA’s principles, identifies actions CMA is taking now/considers in near future to address risks.
The 3 risks that may arise from developments are firms that control critical inputs for developing FMs may restrict access to them to shield themselves from competition.
Powerful incumbents could exploit their positions in consumer or business facing markets to distort choice in FM services and restrict competition in FM deployment.
And the third key risk according to the CMA is that partnerships involving key players could reinforce or extend existing positions of market power through the value chain.
Key concern is growing presence across FM value chain of a few incumbent technology firms which already hold positions of market power; could profoundly shape FM-related markets, affecting fair, open, effective competition, harming businesses, consumers.
CMA will continue to examine impact of FMs on competition and consumer protection, and continue dedicated program of work to consider impact of FMs on markets in 2024, including paper on AI accelerator chips on their role in the FM value chain.
Joint research in the Digital Regulation Cooperation Forum (DRCF) on consumers’ understanding, use of FM services; participate in DRCF AI and Digital Hub pilot due in spring 2024; joint statement with UK ICO on interaction between competition, consumer protection, data protection in FMs; update in this area due autumn 2024.
