Is It AI or Data That Drives Market Power?

Roxana Mihet, Kumar Rishabh and Orlando Gomes
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Roxana Mihet: Swiss Finance Institute - HEC Lausanne
Kumar Rishabh: University of Lausanne - Faculty of Business and Economics (HEC Lausanne); University of Basel, Faculty of Business and Economics

No 25-37, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Artificial intelligence (AI) is transforming productivity and market structure, yet the roots of firm dominance in the modern economy remain unclear. Is market power driven by AI capabilities, access to data, or the interaction between them? We develop a dynamic model in which firms learn from data using AI, but face informational entropy: without sufficient AI, raw data has diminishing or even negative returns. The model predicts two key dynamics: (1) improvements in AI disproportionately benefit data-rich firms, reinforcing concentration; and (2) access to processed data substitutes for compute, allowing low-AI firms to compete and reducing concentration. We test these predictions using novel data from 2000–2023 and two exogenous shocks—the 2006 launch of Amazon Web Services (AWS) and the 2017 introduction of transformer-based architectures. The results confirm both mechanisms: compute access enhances the advantage of data-intensive firms, while access to processed data closes the performance gap between AI leaders and laggards. Our findings suggest that regulating data usability—not just AI models—is essential to preserving competition in the modern economy.

JEL-codes: D83 E22 L13 L41 L86 O33 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2537

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