Microsoft’s Power Play with OpenAI Escapes Competition Authorities for Now

Microsoft’s Power Play with OpenAI Faces Scrutiny from German Regulators

In a fast-developing situation, Microsoft’s acquisition of top executives and AI engineering talent from OpenAI is drawing attention from competition regulators, particularly in Germany. Despite Microsoft’s minority stake in OpenAI, the tech giant’s visible absorption of talent and value has raised concerns about potential AI monopolies. However, experts suggest that regulators may have limited grounds to intervene due to the nature of the executive changes. While Germany’s Federal Cartel Office (FCO) previously concluded that Microsoft’s involvement with OpenAI did not trigger merger control, it warned that any increase in Microsoft’s influence could prompt a reexamination.

Regulatory Challenges for Microsoft

Microsoft has faced merger controls in the past, including in the UK, where it proposed divesting certain cloud-streaming rights to secure approval for its gaming megamerger with Activision. The company has also agreed to conditions imposed by the European Union’s antitrust regulators. However, the current situation with OpenAI presents a unique challenge for competition authorities. The retention of senior executives does not constitute an acquisition of assets, making it difficult for regulators to intervene. However, if Microsoft were to gain a seat on OpenAI’s board, it could trigger a change of control and prompt further scrutiny from regulators.

Competition Concerns in the AI Market

With only a few major players in the advanced AI market, there is a risk of establishing and entrenching AI monopolies. However, existing competition regulators may struggle to address the rapid movement of talent between companies. While Germany’s FCO has the power to designate companies as “gatekeepers” under its ex ante competition law, it has not yet extended this designation to cloud services. Additionally, the European Union’s Digital Markets Act (DMA) is primarily retrospective in nature, relying on past competition concerns to address current challenges. Experts question whether the DMA will be able to keep pace with the evolving AI market and whether regulators have the appetite to intervene in high-profile corporate power plays.

The Future of AI Regulation

As Microsoft continues to expand its influence in the AI space, there are calls for regulators to take a more proactive approach. Experts suggest that regulators should scrutinize deals like Microsoft’s acquisition of OpenAI, even if they are designed to fly under the radar. While the DMA may have some impact on Big Tech’s market power, it may not be enough to disperse the concentrated power that enables companies to make significant deals and disrupt entire industries. Critics argue that regulators need to develop more assertive strategies to address the challenges posed by rapidly evolving technologies and corporate power plays.

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