Competition policymakers around the world have been expressing concerns about competition in emerging artificial-intelligence (AI) industries, with some taking steps to investigate them further. These fears are notably fueled by a sense that incumbent (albeit, in adjacent markets) digital platforms may use strategic partnerships with AI firms to stave off competition from this fast-growing field.
Against this backdrop, the UK’s Competition and Markets Authority (CMA) recently announced it would investigate three proposed AI partnerships between incumbent tech platforms and AI startups:
- Amazon’s partnership with Anthropic;
- Microsoft’s partnership with Mistral AI; and,
- Microsoft’s hiring of former Inflection AI employees (including, notably, founder Mustafa Suleyman), as well as related arrangements with the company.
Unfortunately, as we explain below, these investigations risk doing more harm than good. Indeed, publicly available information suggests that these transactions may not warrant merger-control investigation, let alone the heightened scrutiny that comes with potential Phase II proceedings. And given the AI industry’s highly competitive landscape, there is little to suggest that these transactions merit closer scrutiny than similar deals in other sectors.
To be clear, there should be no question that the AI sector is highly competitive. AI services have seen their user bases grow rapidly, and new players are thriving. If incumbent firms could easily leverage their dominance into these burgeoning generative-AI markets, we would not have seen the growth of such AI “unicorns” as OpenAI, Midjourney, and Anthropic, to name but a few.
Meanwhile, AI platforms developed by incumbent “Big Tech” firms, each with troves of data—such as Meta’s Llama or Google’s Bard, recently relaunched as Gemini—have struggled to gain traction. Of course, this is not to say that competition enforcers shouldn’t care about generative-AI markets, but rather that there currently is no apparent need for increased competition scrutiny in these markets.
To make matters worse, overenforcement in this field could paradoxically elicit the very harms that policymakers wish to avert. Preventing so-called “Big Tech” firms from competing in AI (for example, by threatening competition intervention the moment they seek to build strategic relationships with AI startups) may, indeed, thwart an important source of competition needed to keep today’s leading generative-AI firms in check. The risk is that incumbents will no longer be able to enter these markets, and that AI startups will struggle to obtain the funding they need to compete against larger AI firms.
Competition in AI markets is essential, but trying naïvely to hold incumbent tech firms back, out of misguided fears they will come to dominate this space, is likely to do more harm than good.
A Big Fuss over Minority Stakes
There are important reasons to believe that the agreements the CMA is investigating will have no negative impact on competition and may, in fact, benefit consumers—e.g., by enabling those startups to raise capital and deploy their services at an even larger scale. In other words, these deals do not bear any of the prima facie traits of “killer acquisitions” or acquisitions of “nascent competitors”.
Most importantly, these partnerships all involve the acquisition of minority stakes that do not entail any change in control of the target companies. Amazon, for instance, will not have “ownership control” of Anthropic. The precise amount of shares acquired has not been made public, but a reported investment of $4 billion in a company valued at $18.4 billion would not give Amazon a majority stake or sufficient voting rights to control the company or its competitive strategy. It has also been reported that the would not give Amazon any seats on the Anthropic board or special voting rights (such as the power to veto some decisions). There is thus little reason to believe Amazon has acquired indirect or de facto control over Anthropic.
Microsoft’s investment in Mistral AI is even smaller, in both absolute and relative terms. Microsoft is reportedly investing only $16 million in a company valued at $2.1 billion. This represents less than 1% of Mistral’s equity, making it all but impossible for Microsoft to exert any significant control or influence over Mistral AI’s competitive strategy. Likewise, there have been no reports of Microsoft acquiring seats on Mistral AI’s board or special voting rights. We can therefore be confident that the deal will not affect competition in AI markets.
Much the same applies to Microsoft’s dealings with Inflection AI. Microsoft hired two of the company’s three founders (conduct that does not currently fall under the scope of UK merger laws), and also paid $620 million for nonexclusive rights to sell access to the Inflection AI model through its Azure Cloud platform. Admittedly, the latter could entail (depending on the deal’s specifics) some limited control over Inflection AI’s competitive strategy, but there is currently no evidence to suggest this will be the case.
This is not to say that the acquisition of a minority stake could never lead to anticompetitive harm. Problems can arise, e.g., when two competing firms acquire minority shareholdings in one another—doing so may dampen their incentives to compete. That scenario, however, is markedly different from the cases at-hand, where the firms are vertically related and thus do not have the same incentives to reduce competition. Indeed, if Amazon or Microsoft supplies AI firms with cloud-computing services, then, to a first approximation, competition among the latter benefits the former.
Finally, none of these deals entail any competitively significant behavioral commitments from the target companies. There are no reports of exclusivity agreements or other commitments that would restrict third parties’ access to the firms’ underlying AI models. Again, this means the deals are unlikely to negatively impact the competitive landscape in these markets.
On the opposite end of the scale, the larger companies’ cash investments in Mistral and Anthropic could enable these firms to better compete against current industry leaders, like OpenAI. Given the incredibly fast-paced nature of the generative-AI sector, delaying these cash infusions by several months could have severe consequences for competition and, ultimately, for consumers.
The UK Needs to Attract Startups
At a more macro level, how the CMA handles these proposed deals could have important ramifications for the UK economy. On the one hand, competition authorities (including the CMA) may be tempted to avoid the “mistakes” they arguably made during the formative years of what have become today’s largest online platforms. The arguments that some raise is that tougher enforcement may have reduced the high levels of concentration we see in these markets. The counterpoint, of course, is that dynamic technology markets present features that naturally lead to relatively high levels of concentration, and that this concentration benefits consumers in several ways.
Unfortunately, this urge to curtail false negatives may lead to judicial errors that hobble the UK economy. Discussing the EU’s AI Act during a recent interview, French President Emmanuel Macron implicitly suggested that the UK is in a unique position to attract AI (and other tech) investments away from the European Union. In his words:
We can decide to regulate much faster and much stronger than our major competitors. But we will regulate things that we will no longer produce or invent. This is never a good idea…
When I look at France, it is probably the first country in terms of artificial intelligence in continental Europe. We are neck and neck with the British. They will not have this regulation on foundational models. But above all, we are all very far behind the Chinese and the Americans.
To capitalize on this opportunity, however, the UK must foster a fertile environment for startup activity. The CMA’s approach to merger review in the AI industry is a small, but important, part of this picture. Looking at AI partnerships in an even-handed manner would signal a commitment to the kind of evidence-based policymaking that creates legal certainty for startups. For instance, sound merger-review principles would assure founders that corporate acquisition will remain a viable exit strategy in all but exceptional circumstances.
Of course, none of this is to say that established competition-law principles should play second fiddle to broader geopolitical ambitions. It does, however, suggest that the cost of false positives is particularly high in key industries like AI.
Conclusion
In short, the CMA’s approach to these AI partnerships is of pivotal importance for both UK competition policy and the country’s broader economic ambitions. The CMA should therefore look at these partnerships with an open mind, despite the important political and reputational pressure to be seen as “doing something” in this cutting-edge industry.
Generative AI is already changing the ways that many firms do business and improving employee productivity in many industries. The technology is also increasingly useful in the field of scientific research (e.g., here and here), where it has enabled new complex models that expand scientists’ reach.
While sensible enforcement is of vital importance to maintain competition and consumer welfare, it must be grounded in empirical evidence.
