Competition in the age of AI

Artificial intelligence (AI) can reshape markets, yet its implications for competition remain underexplored. This paper develops a conceptual framework distinguishing AI users from developers, and generative (GenAI) from non-generative AI, showing how competitive mechanisms differ across these dimensions. Using multiple microdata sources, the analysis documents several findings. Adoption of non-GenAI is not associated with significant increases in market power. Descriptive evidence on firms’ exposure to GenAI suggests opportunities for smaller firms alongside advantages for firms with stronger existing capabilities. Concentration in AI innovation is correlated with higher sales concentration. AI-related patenting is associated with faster markup growth, particularly in the ICT sector, where AI is an output. The AI start-up ecosystem is dynamic and attracts substantial venture capital, but start-ups are frequently acquired by large incumbents. Overall, the evidence points to a dynamic yet uneven landscape, underscoring the need for continued monitoring as AI diffusion progresses.