Firms, competition, and market structure

This chapter examines artificial intelligence (AI) as a force that reorganizes firms, platforms, and market structure. AI affects competition not only by lowering costs, but also by changing the industrial assets that matter: proprietary data, compute infrastructure, model capability, specialized talent, distribution channels, and the ability to run continuous experiments. The chapter explains why AI can reinforce superstar firm dynamics, how data can generate increasing returns without being a simple monopoly input, and why platform markets require a two-sided rather than purely product market view. It also studies algorithmic pricing and the possibility that learning systems may facilitate collusive outcomes even without explicit human agreement. The central message is deliberately balanced: AI may intensify concentration when feedback loops between users, data, models, and capital are strong, but it can also lower entry barriers when general-purpose models, cloud infrastructure, and open-source tools become broadly accessible. The policy problem is therefore not to punish scale as such, but to distinguish productive scale from exclusionary control over the bottlenecks of the AI economy.