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Is It AI or Data That Drives Market Power?

Author

Listed:
  • Roxana Mihet

    (Swiss Finance Institute - HEC Lausanne)

  • Kumar Rishabh

    (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); University of Basel, Faculty of Business and Economics)

  • Orlando Gomes

    (Lisbon Polytechnic Institute - Lisbon Accounting and Business School)

Abstract

Artificial intelligence (AI) is transforming productivity and market structure, yet the roots of firm dominance in the modern economy remain unclear. Is market power driven by AI capabilities, access to data, or the interaction between them? We develop a dynamic model in which firms learn from data using AI, but face informational entropy: without sufficient AI, raw data has diminishing or even negative returns. The model predicts two key dynamics: (1) improvements in AI disproportionately benefit data-rich firms, reinforcing concentration; and (2) access to processed data substitutes for compute, allowing low-AI firms to compete and reducing concentration. We test 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. The results confirm both mechanisms: compute access enhances the advantage of data-intensive firms, while access to processed data closes the performance gap between AI leaders and laggards. Our findings suggest that regulating data usability—not just AI models—is essential to preserving competition in the modern economy.

Suggested Citation

  • Roxana Mihet & Kumar Rishabh & Orlando Gomes, 2025. "Is It AI or Data That Drives Market Power?," Swiss Finance Institute Research Paper Series 25-37, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2537
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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