Technological transformations of watersheds It can provide opportunities for new entrants to challenge market leaders. These rare paradigm shifts are redefining how companies compete for customers and resources. The emergence of generative AI is a typical example of how innovation can disrupt or solidify dominant firms depending on how markets and regulators respond.
Generative AI uses massive models trained on rich and diverse datasets to create new content. This revolutionary tool is reshaping how companies interact with their customers, competitors and partners, creating huge opportunities and huge risks.
The Federal Trade Commission (FTC) is making the case for strict antitrust enforcement. A recent technology blog submission from the Competition Office and Technology Office staff Several practices that can lead to government intervention. To understand antitrust risks when competing in markets affecting generative AI, companies must familiarize themselves with the parameters and limitations of several popular antitrust theories of harm.
Exclusive dealing
Companies often seek to support suppliers or customers through exclusive deals. Exclusive dealing is not necessarily a problem, and often stimulates competition. But agreements that enable one company to control critical inputs, distribution channels or customer segments can raise concerns. In McQueen v. Federal Trade Commission, for example, a federal court condemned exclusive dealing arrangements that prevented competitors from “distributing sufficiently to achieve effective scale, thereby raising costs and slowing or preventing effective entry”.
AI startups must familiarize themselves with the parameters and limits of several popular antitrust theories of harm.
In the context of generative AI, the FTC anticipates antitrust exposure as “established companies that provide computing services and generative AI products” use such arrangements to discriminate against new entrants. The FTC appears ready to scrutinize exclusive deals involving computing resources, such as graphics processing units, that are key to competing in the generative AI markets.
Although each agreement requires individual evaluation, several general principles are worth knowing. First, exclusive dealing arrangements should not be implemented as part of a scheme to exclude or disenfranchise competitors. Exclusive dealing contracts that prevent competitors from expanding are inherently risky.
Second, companies must simultaneously document any pro-competitive benefits, such as lower costs, higher quality, and better access to products, and they should be prepared to explain specifically how individualization improves products or services. Finally, you have to realize that exclusive arrangements with companies whose market share exceeds 30% are riskier.