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Concentrating intelligence: scaling and market structure in artificial intelligence

Author

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  • Anton Korinek
  • Jai Vipra

Abstract

This paper examines the evolving structure and competition dynamics of the rapidly growing market for AI foundation models, with a special focus on large language models. We describe the technological characteristics that shape the AI industry and have given rise to fierce competition among the leading players. The paper analyses the cost structure of foundation models, emphasizing the importance of key inputs such as computational resources, data and talent, and identifies significant economies of scale and scope that may create a tendency towards greater market concentration and natural monopolies in the future. We explore two additional concerns for competition, the risk of market tipping and the implications of vertical integration, and we analyse policy remedies that may contribute to maintaining a competitive landscape. Looking ahead to increasingly transformative AI systems, we discuss how market concentration could translate into unprecedented accumulation of power, highlighting the broader societal stakes of competition policy.

Suggested Citation

  • Anton Korinek & Jai Vipra, 2025. "Concentrating intelligence: scaling and market structure in artificial intelligence," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 40(121), pages 225-256.
    • Handle: RePEc:oup:ecpoli:v:40:y:2025:i:121:p:225-256.
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    File URL: http://hdl.handle.net/10.1093/epolic/eiae057
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    Keywords

    D43; K21; L4; L86; O33;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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