Following an initial report on AI Foundation Models (FMs) last year, the Competition and Markets Authority (CMA) has expressed “real concerns” about it and is investigating the dominance of a small number of big tech firms at the centre of the FM market.
Foundation Models
Foundation models (FMs) are AI systems / large-scale machine learning models that are pre-trained on large amounts of data and can be adapted to a range of different, more specific purposes. Examples include the GPT (Generative Pre-trained Transformer) models such as GPT-3 and GPT-4 (different versions of the model behind ChatGPT).
What’s The Issue?
As highlighted by the original CMA report, fast-changing FMs have the potential to transform how we live and work, i.e. they possess significant potential to impact people, businesses, and the UK economy. The CMA wants to ensure this AI market develops in a way that doesn’t undermine consumer trust or is dominated by a few players who can exert market power that prevents the full benefits being felt across the economy.
The previous report on the FMA market led to a set of proposed guiding principles to help achieve this, including making FM developers and deployers accountable for outputs provided to consumers, asking for sufficient choice for businesses so they can decide how to use FMs, plus stressing the need for fair dealing, i.e. no anti-competitive conduct including anti-competitive self-preferencing, tying or bundling.
Move Away From “Winner Takes All Dynamics”
Now, in the next step from its previous report and development of guiding principles around the FM market, the CMA has outlined growing concerns. The CMA’s Sarah Cardell, for example, has expressed the need to learn from history and move away from the kind of “winner takes all dynamics” that has led to the rise of a small number of powerful platforms.
3 Areas Of Focus
The CMA identifies three (what it believes to be key) interlinked risks to fair, effective, and open competition in the FM market. These are:
1. Firms controlling critical inputs for developing FMs restricting access to shield themselves from competition.
2. Powerful incumbents possibly exploiting their positions in consumer (or business-facing) markets to distort choice in FM services and restrict competition in deployment.
3. Partnerships involving key players being able to exacerbate existing positions of market power through the value chain.
In an update paper, the CMA has, therefore, provided details on how each risk would be mitigated by its principles, and also by the actions it’s taking at the moment.
An Interconnected Web
One point highlighted by the CMA that illustrates the complication of regulating the FM market effectively is the “interconnected web” of “over 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).”
The CMA says that although it recognises the wealth of resources, expertise and innovation these large firms can bring to bear, the role they will likely have in FM markets, and that such partnerships can play a pro-competitive role in the technology ecosystem, it also recognises that powerful partnerships and integrated firms shouldn’t reduce rival firms’ ability to compete, or be used “to insulate powerful firms from competition”.
As the CMA CEO, said: “The essential challenge we face is how to harness this immensely exciting technology for the benefit of all, while safeguarding against potential exploitation of market power and unintended consequences.”
What Does This Mean For Your Business?
Given the fast pace with which the FM market is growing and changing, plus the fact that there is an ever more complicated “interconnected web” of partnerships between the big tech companies at the heart of this market, it’s not surprising that regulator wants to stay involved to have any chance of understanding and regulating it effectively. As highlighted by the CMA’s CEO Sarah Cardell, the transformative promise of FMs as a potential “paradigm shift” for societies and economies is the prize. Although the big tech companies have been the big investors in the development of AI so far, it’s still a ‘market’ that needs fair, open, and effective competition where there’s plenty of choice for buyers, prices are kept low enough, and where innovation isn’t stifled.
We’re still at the stage where guidelines are being given and warnings are being issued but if other aspects of big tech company activities are anything to go by, this is going to be a very challenging market for the CMA to stay on top of and regulate. As the CMA has said, it’s going to be a difficult job to confront the “winner takes all dynamics” of the big tech companies and it remains to be seen how much trouble the CMA has regulating this incredible marketplace.