Is it AI or data that drives firm market power?

The technology revolution is transforming firm and industry dynamics, yet the roots of firm dominance in the modern economy remain unclear. Is industry dynamism driven by compute capabilities (AI), access to data, or the interaction between them? We develop a dynamic model in which firms gain knowledge from raw data using AI, but face “informational entropy” : without sufficient AI, more raw data leads to information overload and has negative returns. The model has two key predictions: (1) improvements in AI (compute) disproportionately benefit data-rich firms; and (2) access to processed data substitutes for compute, increasing industry dynamism and reducing market concentration. We confirm 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. Our findings suggest that regulating data usability, not just AI models, is essential to preserving competition in the modern economy.