Old Moats for New Models: Openness, Control, and Competition in Generative AI

Drawing insights from the field of innovation economics, we discuss the likely competitive environment in which generative AI advances will take place. Central to our analysis are the concepts of appropriability—whether firms in the industry are able to control the knowledge generated by their innovations—and complementary assets—whether effective entry requires access to specialized infrastructure and capabilities to which incumbent firms can ration access. While the rapid advancements in AI foundation models promises transformative impacts across broad sectors of the economy, we argue that tight control over complementary assets will likely result in a concentrated market structure, similar to past technological upheavals. We suggest the likely paths through which incumbent firms may restrict entry, confining newcomers to subordinate roles and stifling broad sectoral innovation. We conclude with speculations regarding how an oligopolistic future with blunted innovation could be averted. Policy interventions aimed at fractionalizing or forcing shared access to complementary assets might help preserve competition and incentives for extending the generative AI frontier. Ironically, the best hopes for a vibrant “open source” AI ecosystem might rest on the presence of a “rogue” technology giant, who might choose openness and engagement with smaller firms as a strategic weapon wielded against other incumbents.

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