It should come as no surprise to both believers and naysayers that artificial intelligence (AI) has had a major impact on various industries across the globe. While even the most vehement believers in the benefits of AI can concede that the introduction of AI has not only had good outcomes, one thing is clear: AI is here to stay. As a result of the permanency and wide-ranging impact of AI across the globe, many competition (antitrust) regulators have identified competition risks, indicated their intention protect against its potentially harmful effects, and implemented their competition law tools to prevent anticompetitive outcomes, thereby ensuring that its benefits can be widely felt. Below I will briefly outline the potential benefits and risks brought about by AI to competition law, and the tools that regulators have at their disposal to ensure that a balance is kept between competition and innovation.
What’s the fuss?
AI has the potential to significantly benefit various industries. Foremost in this regard, AI provides companies with an efficient tool to enhance their innovation and product differentiation. AI tools enable many companies to streamline their operations, resulting in cost reductions and process optimization. Moreover, companies utilizing AI technologies may be able to price their goods and services more dynamically and enhance their customer experience through effective data processing and personalized customer service. Although these benefits could place the companies with the resources to access and implement AI tools at a competitive advantage, the potentially anticompetitive outcomes resulting from AI are also evident. In this regard, AI could act as a barrier to entry or lead to the entrenchment of existing positions of market power. For example, certain companies may have larger budgets for purposes of AI implementation strategies, or more resources for purposes of processing their data or creating their own AI technologies. Companies that are likely to reap these benefits may already be operating at a competitive advantage in the context of digital markets more generally, thereby causing a spillover effect with the introduction of AI. Similarly, certain companies may be able to access larger data sets and, as a result, may be able to train better AI models. From a consumer perspective, AI could also lead to negative consequences such as redundancies in companies, as certain roles become automated.
While it may be too early to determine with precision how AI will impact competition, it is apparent that several competition regulators have been monitoring the impact of AI on markets and have consequently identified unique challenges and AI-related risks. For example, the European Commission has for several years kept a close eye on the tech industry under the authority granted to it by the Digital Markets Act which, inter alia, aims to prevent anti-competitive practices by large platforms such as Google and Microsoft. The prevalence of strong platforms that demonstrate market power has become increasingly frequent in the concentrated digital economy. This has resulted in fines of billions of Euros being imposed on tech giants. Moreover, following approximately three years of drafting, in 21 May 2024, the Council of the European Union definitively approved the Artificial Intelligence Act (AI Act). The AI Act is aimed at establishing a balance between the facilitation of scope for technological innovation, while protecting relevant rights and freedoms.
Many competition regulators have not yet had to grapple with the effects of AI on competition law, due to the nascent nature of the risks posed by AI to competition. In this regard, regulators are faced with the difficult question of when to step in to address factors that have the potential to harm competition or contravene competition legislation. This issue is not novel. Regulators across the globe have seen the rapid rate at which digital firms increase and entrench their power. Notwithstanding that digital firms can have major impacts on the effectiveness of competition, their conduct is not always in contravention of competition legislation. Accordingly, the effective use of the below tools by competition regulators is vital.
So, what tools do regulators have in their arsenal?
At the outset, it is important to recognize that competition regulators have varying scope to consider AI related issues. Accordingly, one must consider whether regulators’ resources will likely be well spent or wasted on AI-related concerns, relative to the opportunity cost of expending those resources on other competition concerns. In other words, are the likely outcomes of companies gaining temporary market power durable enough to warrant regulatory intervention?
Competition regulators typically have (some of) the following mechanisms available to ensure that markets remain competitive:
- Merger control: Something that we have already seen in the competition arena is that regulators have treated mergers in the technology industry with increased conjecture. Despite the increased scrutiny of regulators, certain gaps remain. For example, due to low turnover or market share achieved or held by technology start-ups, transactions involving seemingly inconspicuous target firms could pass below the merger notification thresholds but may have significant consequences soon thereafter. In response to the growing trend of AI- and tech-related mergers, regulators in various jurisdictions have considered acquisitions in the AI and technology industry with heightened scrutiny and, to an extent, some creativity. For example, the FTC announced in January this year that it was investigating strategic investments in the AI sector, following Microsoft’s hiring of two co-founders of Inflection AI, an AI company that raised billions of dollars since its inception in 2022. The FTC’s announcement aligns with the ongoing discussion by regulatory heads, that the hiring of Inflection AI’s co-founders as part of a broader licensing deal is akin to an acquisition.
- Advocacy, monitoring and information gathering: Well established and younger competition agencies alike are increasingly allocating resources to advocacy and monitoring tools such as market inquiries and engagement with market participants. Regulators in several jurisdictions, including South Africa, the UK and Germany have introduced powers to investigate specific markets. Advocacy and monitoring tools can ease the technical complexity and intensiveness of the data collection process for competition regulators, specifically in circumstances where regulators are tasked with reviewing or investigating AI-related issues that are rapidly changing. Advocacy and monitoring tools could be implemented in collaboration with regulators in other jurisdictions, for increased effectiveness. The threat of competition regulators’ investigatory powers may also act as a deterrent, reducing the rate of competition law breaches.
- Enforcement action: Lastly, regulators may also make use of the relevant abuse of dominance provisions to restrict dominant competitors, or those that demonstrate market power, from abusing their dominance. In the context of AI, some have suggested that competition regulators should focus on the generative AI components where abusive conduct could hamper competitors’ ability to take advantage of increasing returns to scale. While dominance regulation is not the most accessible tool available to regulators, historical investigations in the context of digital markets may lend advantages to regulators looking to build abuse of dominance cases involving, for example, tying or bundling products by firms that are already enjoying market power. Regulators are typically empowered to impose penalties on companies found in contravention of the abuse of dominance or prohibited practices provisions and may impose ancillary remedies such as access to data.
AI has undeniably transformed various industries, bringing significant benefits to companies and consumers alike. However, its introduction also presents notable competition risks. Regulators worldwide are increasingly aware of these risks and are actively monitoring AI’s impact on markets. Tools such as merger control, advocacy, monitoring, and enforcement actions are available and being used to balance the benefits of AI with the need to maintain competitive markets.
As the landscape continues to develop, regulators face the challenge of determining the appropriate timing and extent of their interventions. Ensuring a balanced approach will be crucial to fostering both competition and innovation in the AI-driven economy.
