The Rise of AI: Implications for Market Competition and EU Policy

As AI technologies continue to evolve and integrate into various sectors, their impact on market competition has become a significant concern. The European Union (EU) is actively addressing these concerns within its existing competition legal framework, primarily through the AI Act. Although the AI Act only briefly mentions competition, it could support market competitiveness and complement existing EU competition law and enforcement practices.

The Foundation of EU Competition Law

EU competition law is designed to ensure fair competition across the market by prohibiting anti-competitive practices, the abuse of market dominance, and harmful mergers. Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) outline these prohibitions, aiming to promote fair competition, prevent anti-competitive practices, and safeguard consumer welfare. Additionally, the law seeks to prevent mergers and acquisitions that could harm effective competition, thus fostering market structures that encourage innovation and competitive behaviour.

AI's Dual Impact on Market Dynamics

AI technologies profoundly impact market competition, reshaping traditional dynamics in both positive and negative ways. On the positive side, AI can enhance efficiency and innovation, provide deeper market insights, enable market entry, and optimise pricing strategies. However, the potential risks are significant. AI could lead to increased market concentration, algorithmic collusion, abuse of dominance, and barriers to entry.

The AI Act: Supporting Fair Competition

The AI Act aims to regulate AI use in EU markets extensively and is expected to influence competition dynamics and competition law practices in several ways:

1. Transparency and Risk Assessment: By requiring transparency and risk assessments, the AI Act aims to make AI systems more transparent and accountable, helping to identify and prevent anti-competitive behaviour.
   
   
2. Support for SMEs and Start-ups: The AI Act considers the size of providers and offers simplified compliance pathways, supporting small and medium-sized enterprises (SMEs) and start-ups. This prevents them from being overshadowed by dominant players.
   
   
3. Encouraging Trustworthy AI: By emphasising trustworthy AI, the AI Act promotes investment in research and development, encouraging innovation and competition in AI-related markets.

Enhancing Competition Law Enforcement

The AI Act can influence the enforcement of competition law through its provisions on information sharing with competition authorities. National supervisory authorities will have access to companies' data for compliance checks and are required to share any data relevant to EU competition law enforcement with the Commission and national competition authorities. This low threshold for information sharing, defined as "potential interest for the application of Union law on competition rules" in Article 74(2), may enhance the accuracy and efficiency of investigations by providing data that competition authorities might not otherwise obtain.

The Digital Markets Act (DMA) and Gatekeeper Designations

Following the publication of the Digital Markets Act (DMA), the process began to identify gatekeepers subject to its requirements. On September 6, 2023, the European Commission designated six companies—Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft—as gatekeepers under the DMA, including twenty-two core platform services like TikTok, WhatsApp, and Google Play. These gatekeepers have until March 7, 2024, to ensure compliance with the DMA. Additional designations were made on April 29, 2024, for Apple (iPadOS) and Booking (Booking.com). The Commission has initiated non-compliance investigations against Alphabet, Apple, and Meta, indicating ongoing enforcement efforts.

Future Directions and Stakeholder Engagement

The Commission has initiated calls for contributions on competition in virtual worlds and generative AI, inviting stakeholders to share insights on market competitiveness and the role of competition law. Following a review of submissions, the Commission may organise a workshop to consolidate diverse perspectives, supplementing efforts to apply EU competition rules in AI-related contexts. The Commission is also investigating agreements between major digital players and generative AI developers, including Microsoft's investment in OpenAI, to assess their impact on market dynamics under the EU Merger Regulation.

Conclusion

The AI Act and the DMA aim to promote transparency, accountability, and fair competition, potentially mitigating the negative impacts of AI on competition dynamics. As AI technologies continue to shape market competition, the EU's proactive stance through these regulatory frameworks will be crucial in ensuring that innovation and competitive behaviour thrive without compromising fair market practices.