The boardroom of OpenAI, the business that developed ChatGPT, has seen some turbulent times recently. But while the drama across the sacking and reinstatement of CEO Sam Altman has subsided, the corporate now faces investigation by the UK competitor authority – a regulator that’s been increasingly training its highlight on big tech lately.

After the surprise sacking of Altman by OpenAI’s board in November, he was immediately hired by tech giant Microsoft, which also pushed for him to be reinstated as CEO of OpenAI. Just a few days later it was confirmed that Altman was back as OpenAI CEO, alongside a brand new board on which Microsoft was granted a non-voting observer seat.

Microsoft is the most important investor within the business arm of OpenAI. It has put around US$13 billion (£10.3 billion) into the business. It’s also the exclusive supplier of the cloud computer services that OpenAI uses to develop and operate its AI models.

Even though Altman was only out for lower than per week, the episode could have a big impact on OpenAI’s future. It revealed the strong links between OpenAI and Microsoft, prompting UK competition regulator, the Competition and Markets Authority (CMA), to announce an investigation into their relationship.

Competition regulation

The CMA wants to look at whether the present partnership between OpenAI and Microsoft is actually a merger – that’s, whether there was an acquisition of control by Microsoft or a change in the character of control. But it also signals the regulator’s intent to proceed to closely examine big tech firms because it goals to guard consumers.

In addition to its investments, Microsoft only has non-voting observer status on OpenAI’s board. But if the CMA concludes the partnership is in truth a merger, it would start looking into whether this merger has led to a considerable lessening of competition (SLC). The CMA would then need to contemplate the best way to treatment the harm and this might lead to a change within the governance structure of OpenAI.

Microsoft’s supply of cloud computing services to OpenAI can even be an important a part of the investigation. If Microsoft is denying or restricting supply of those services to OpenAI’s rivals, the CMA could conclude that this harms competition.

OpenAI has also developed general-purpose AI systems that may improve a spread of applications used widely by consumers, for instance productivity software and search engines like google. The CMA will have a look at Microsoft’s ability and incentive to limit the availability of AI systems to corporations competing in these markets, for instance rivals of Microsoft’s Bing search engine.

Either scenario could ultimately damage the alternative and quality of services available to consumers – something competition authorities pledge to guard.

Increased scrutiny of huge tech

The CMA’s examination of OpenAI marks a brand new level of scrutiny of high-tech sectors, which competition authorities across the globe have been keeping a detailed eye on for the last twenty years. The CMA established a Digital Markets Unit in 2021.

Its recent high-profile decisions include delaying Microsoft’s acquisition of Call of Duty game developer Activision Blizzard until it amended the terms of the deal. Before that, it ruled that Facebook owner Meta’s acquisition of GIF video provider Giphy was anti-competitive, forcing it to sell Giphy.

Concerns about restricting supply of services or products to rivals were also central to those cases. And its decisions reveal the power and willingness of the CMA to impose significant structural remedies on corporations. It’s even prepared to completely unwind deals that it deemed would harm competition. Other national regulators had already given the deal the green light before the CMA’s intervention was resolved.

The Competition and Markets Authority promotes competitive markets and goals to guard consumers from unfair business activity.

The challenges of regulating tech corporations

There are some aspects that make it difficult for competition authorities to manage high-tech markets, nonetheless. First, these markets are extremely dynamic and might evolve in ways which might be unexpected. This makes it hard for competition authorities to accurately determine harm to competition and the impact potential remedies can have.

Second, these investigations often involve large, powerful corporations with substantial lobbying power and major global presences. When the merger between Microsoft and Activision Blizzard was initially blocked by the CMA, the businesses got a variety of press by claiming the choice showed the UK was “closed for business”.

On the opposite hand, the dynamic nature of those markets makes it essential for competition authorities to fastidiously scrutinise and, where essential, intervene early-on as high-tech sectors emerge. Otherwise, there may be a danger that first-movers can quickly entrench and exploit their dominant positions. Competition authorities allowed Facebook to amass Instagram in 2012, for instance, but now Instagram is so popular this decision has been criticised.

The potential for AI to drastically change all walks of life makes it imperative that the CMA (and other competition authorities) take this chance to shape how the sector develops and who advantages.

It’s still early days for AI, however the CMA could call on OpenAI to change its ownership structure or it could even regulate the way it operates or what it sells. This could give the CMA more control over how the market evolves, but would also require it to extensively monitor this complex market.

Either way, it has the potential to have a big effect on how OpenAI grows and innovates, and who’s in a position to profit from its creations – in addition to those from other corporations within the burgeoning AI market.

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