CenterforSecurityandEmergingTechnology|1

ExecutiveSummary

Intheyearsahead,increasinglyadvancedartificialintelligencesystemsareexpectedtoreshapetheglobaleconomicandnationalsecuritylandscape.Maintaininglong-termU.S.leadershipinAIwillrequirepolicymakerstofosteradiversified,contestable,andcompetitivemarketforcommercialAIsystems.Competitivemarketsareakeydriverofinnovation,incentivizingincumbentfirmstocontinuouslyimprovetheirofferingsand

encouragingstartupstobringdisruptiveproductstothemarket.Inadditionto

galvanizinginnovation,promotingcompetitionamongAIdeveloperswouldpreventtheU.S.AIindustryfrombecomingadigitalmonocultureandmakethecountrymoreresilientagainsteconomicdisruptions,technologicalsurprises,andothernational

securityrisks.

Asitstandstoday,however,thecommercialAIindustryseemspoisedtobecomelesscompetitiveovertime.TheorganizationoftheAIsupplychain,theeconomicsofAI

development,andtheindustry’sprevailing“bigger-is-better”paradigmgiveincumbenttechnologycompaniesaclearadvantageintheproductionofAIsystems.ThesefirmshaveboththemeansandmotivationtousetheirmarketpowertostiflecompetitionintheAIsector.Byleveragingtheircontrolovercomputinginfrastructure,trainingdata,foundationmodels,andproductdistributionchannels,incumbentscaneffectivelypickwinnersandlosersintheAImarket,potentiallypreventingdisruptiveupstartsand

theirinventionsfromreachingthemarket.Ifleftunchecked,thisbehaviorcould

underminethelong-terminnovationcapacityandresiliencyoftheU.S.AIecosystem.

ThoughthecommercialAIsectorisstillrelativelyyoung,theorganizationofthe

marketisbeginningtosolidify.Assuch,itisappropriateforpolicymakerstobegin

pursuingtargetedmeasurestofostercompetitionwithintheAIecosystem.Waitingtoolongtotakeactionrisksentrenchingcurrentcompetitivedynamics,allowinglarge

technologyincumbentstofurtherextendtheirmarketpoweracrosstheAIindustryandpotentiallystifledomesticinnovation.SuchinactioncouldleavetheUnitedStatesatalong-termdisadvantageagainstcompetitorslikeChina,whohaveastrongincentivetopursuedisruptiveinnovationsthatcounteractU.S.exportcontrolsandothereffortstolimittheirAIcapabilities.Thisreportproposesthreebroadgoalsthatnear-termpolicyactioncouldtargettopromotelastingcompetitionandinnovationintheAImarket,

alongwithspecificpolicyleversforgovernmentleaderstoconsider.Thesegoals

include:1)increasingcompetitionamongcomputeproviders;2)levelingtheplayingfieldintheproductionofAImodelsandapplications;and3)promotingopen

distributionchannelsforAIproducts.

CenterforSecurityandEmergingTechnology|2

TableofContents

ExecutiveSummary 1

Introduction 3

Competition,Innovation,andAI 5

PromotingCompetitiveAIInnovation 7

CompetitiveMarketsandNationalSecurity 9

UnderstandingtheAIMarket 12

TheAISupplyChain 12

NothingGoldCanStay:OpenAIandtheEconomicsofAIDevelopment 16

AIMarketPowers 20

Chokepoint

1:ComputingResources 21

Chokepoint2:DataAccess 23

Chokepoint3:ModelAccess 24

Chokepoint4:ProductDistribution 25

KeyTakeaways 27

PolicyGoalsforPromotingCompetitiveAIInnovation 29

PolicyGoal1:IncreaseCompetitionAmongComputeProviders 29

PolicyGoal2:LevelthePlayingFieldintheProductionof

AIModelsandApplications 31

PolicyGoal3:MaintainOpenDistributionPlatforms 32

TrendstoFollow 33

Conclusion 35

Authors 36

Acknowledgments 36

Endnotes 37

CenterforSecurityandEmergingTechnology|3

Introduction

Recentadvancementsingeneral-purposeartificialintelligence(AI)systems,especiallylargelanguagemodels(LLMs),havecaptivatedleadersacrossgovernment,industry,andacademia.Manytoutthetechnology’sabilitytoimprovedailylife,transformthe

economy,andreshapethenationalsecuritylandscape,whileothersfixateonthe

technology’srisks,suchasitspotentialtoentrenchsocialinequalities,empower

authoritarianregimes,andinstigateglobalcrises.Ascompaniespourbillionsofdollarsintobuildingever-morepowerfulAIsystems,policymakersarelookingforwaysto

harnessthetechnology’spotentialbenefitswhilemitigatingitspurportedharms.

Todate,AIpolicydiscussionsintheUnitedStateshavefocusedlargelyonthe

productionanduseofthetechnologyitself:promotingthesafeimplementationofAIsystems,expandingdomesticAIinfrastructure(semiconductormanufacturing,data

centers),andlimitingChina’sabilitytoscaleupsimilarinfrastructure

.1

However,

policymakershavepaidcomparativelylessattentiontothemarketconditionsinwhichthattechnologyisbeingproduced.

Intheyearsahead,itwillbecriticalforpolicymakerstofocustheireffortson

promotingAImarketcompetition—namely,theprocessbywhichcommercialfirmsvieagainstoneanotherfordominanceinAI.Competitiondynamicscansignificantly

impacttherate,diversity,anddirectionofinnovationinaparticularmarket,aswellasthewaysinwhichthecostsandbenefitsofthoseinnovationsaredistributedacross

society.Indeed,oneofthemosteffectivewaysforpolicymakerstoinfluencethe

trajectoryofAIdevelopmentisbyshapingthecommercialAImarket.Asthefollowingsectionwilldiscuss,competitiveAImarketsarecriticalforpromotingadiversified,

contestable,andcompetitiveinnovationecosystemandmaintainingresilienceagainsteconomicdisruptions,technologicalsurprise,andothernationalsecurityrisks.

WhilemanydevelopershavereleasedAImodelsinrecentyears,agrowingbodyof

researchsuggeststhatcurrenttechnologicalparadigmsandbroaderforcesshaping

theAImarketgivelarge,incumbenttechnologycompaniesadistinctadvantageintheproductionanddistributionofAIsystems,andparticularlylargepre-trainedfoundationmodels

.2

CompanieslikeAlphabet(Google),Amazon,Meta,andMicrosofthaveboththemeansandthemotivationtousetheirmarketpowertostiflecompetitionintheAIsector.Manyarealreadytakingactionsthatcouldmakeitdifficultfornew

developers—includingthoseproducinglessresource-intensiveAImodelsandapplications—tobuildandsustainsuccessfulindependentbusinesses

.3

Withoutinterventionfrompolicymakers,itispossibletheAImarketcouldcontinueto

CenterforSecurityandEmergingTechnology|4

consolidatearoundthesefirms,potentiallyhamperinglong-termAIinnovationandexposingtheU.S.technologysectortofutureeconomicandgeopoliticalshocks.

Federalpolicymakershaveattheirdisposalavarietyofpolicyleversthattheycanusetomaintainhealthycompetitionandpromotelong-terminnovationintheAImarket.Theseincludetraditionalcompetitionpolicytoolslikeantitrustenforcement,

regulation,andintellectualproperty(IP)policy,aswellasothermeasureslike

procurement,researchfunding,andinfrastructuredevelopment

.4

UndertheBiden

administration,policymakersbeganexploringhowthesetoolscanbeusedtocultivateadynamic,innovativeAIindustry,anditiscriticalfortheTrumpadministrationtobuildonthisfoundationtomaintaintheUnitedStates’globalleadershipinthetechnology

.5

ThegoalofthisbriefistohighlightsomeofthecentralissuesrelatedtocompetitionintheAImarketandinformamoreholisticapproachtoAIgovernance.Thefirstsectionprovidesanoverviewoftherelationshipbetweenmarketcompetitionand

technologicalinnovation,aswellastherolethatcompetitivemarketsplayin

maintainingU.S.technologicalleadership.ThesecondsectiondescribesthestructureoftheAIsupplychainandtheeconomictrendsshapingthepresent-dayAImarket.

ThethirdsectionhighlightsfourmajorchokepointsintheAIsupplychainandways

thatincumbentfirmscanexploitthemtoadvantagethemselvesandundermine

competitors.ThefourthsectiondiscussessomeofthepolicytoolsthatcanbeusedtofostercompetitionintheAIindustryandspotlightsafewtechnologicaldevelopmentsthatcouldaffectthecompetitiondynamicsintheyearsahead.

CenterforSecurityandEmergingTechnology|5

Competition,Innovation,andAI

BeforeexploringcompetitiondynamicsintheAImarket,itisimportanttofirstunderstandwhymarketcompetitionmattersfromapolicyperspective.

Oneoftheprimarygoalsoffederaltechnologyandnationalsecuritypolicyisto

promoteinnovation

.6

Bypositioningitselfattheforefrontoftechnologicalprogress,

theUnitedStatescancementitsleadershipinhigh-valueindustries,growthenationaleconomy,andmaintainanedgeoverglobalcompetitors.Whileavarietyoffactors

contributetoinnovation,fewhavebeenasfundamentallyimportanttoAmerican-styleingenuityandprogressasmarketcompetition.

Marketcompetition—theprocessbywhichfirmsvieagainsteachotherforprofitsandmarketshare—isacornerstoneofcapitalism.ItisthroughtheprocessofcompetitionthatAdamSmith,s“invisiblehand”pushesself-interestedcompaniestoactinways

thatbenefitthebroaderpublic;incompetingforcustomers,companiesareincentivizedtolowerpricesandimprovethequalityoftheirproductsandservices

.7

Onewaythatfirmstrytooutmaneuveroneanotherisbyinvestingininnovation,whichcanincludecreatingnewbusinessmodels,streamlininginternaloperations,or,mostrelevantto

thisbrief,developingnewtechnologies.Byinvestinginresearchanddevelopment

(R&D)andcommercializingnewproducts,firmscangainaleguponrivals,whichletsthemexpandtheirsliceoftheexistingmarketoropenupentirelynewmarketsfor

themselves.Manyeconomistsviewthisprocessof“creativedestruction”asakeydriveroftechnologicalprogressandeconomicgrowth

.8

Whilecompetitionandinnovationarecloselyintertwinedincapitalisteconomies,theexactrelationshipbetweenthetwoiscomplex;indifferentsituations,market

competitionmaydrivefirmstoinvestininnovationordeterthemfromdoingso.

Innovationisaninherentlyriskyprocess,demandingtime,money,andpersonnelfor

projectsthatdonotalwayssucceed.Toinvestininnovation,companiesmustthereforehaveboththefinancialresourcestosupportsucheffortsandawillingnesstoabsorbthecostsofpotentialfailures.Firmsincompetitivemarketsmaybeincentivizedtotakeontheserisks,foriftheysucceed,theirnewinnovationwouldgivethemanadvantageovertheircompetitors.However,marketcompetitionalsotendstosuppressfirms,

profitmargins,leavingthemwithlessfreecapitaltoinvestininnovationactivities.Additionally,competitionmayreducethepotentialgainsfromdevelopingnew

productsandprocesses,asrivalscouldhaveaneasiertimecopyingthose

advancementsandcatchinguptotheinnovator.Awidelycitedeconomicstudyhighlightedthesetradeoffs,findingthatcompetitioninitiallydriveshigherratesof

CenterforSecurityandEmergingTechnology|6

innovation,butexcessivecompetitioncandampenthisactivity

.9

Policymakersmustconsiderthis“inverted-U”relationshipastheylooktopromoteU.S.leadershipintheglobalAImarket.

Fromapolicyperspective,itisalsoimportanttounderstandthatnotall“innovations”arealike,anddifferenttypesofcompaniesexcelindifferentaspectsoftechnology

development.ResearchershavefoundthatlargerfirmstendtoinvestmoreresourcesinR&D,buttheirresearcheffortstendtobelessefficientthansmallerfirmsandthe

innovationstheydoproducetendtobemore“incremental”(e.g.,introducingan

improvedversionofaproduct)than“disruptive”(e.g.,introducingtheoriginal

product)

.10

Thisisnottosaythatlargecompaniesnevergenerategroundbreaking

innovations,butratherthatestablishedfirmstendtofocusonadvancingexistinglinesofbusiness,whilesmallerfirmshaveagreaterincentivetoinnovateinwaysthat

disruptexistingparadigmsorservenewsectorsinanindustry

.11

Additionally,itiscrucialtonotethatwhenestablishedfirmsproducenew

technologies,withoutsufficientcompetitivepressure,theymaychoosetowithholdthoseinventionsfromthepublic.ForahistoricalexampleconsiderBellLabs,theresearcharmofAT&Tduringthecompany’smid-20thcenturyheyday.

Foundedin1925,BellLabspioneeredinventionsthatledtothecreationofthe

semiconductor,radar,lasers,solarcells,andothertechnologiesnowconsidered

foundationaltothemoderneconomy

.12

Thelab’scapacityfordisruptiveinnovation

stemmedatleastpartlyfromthemarketpowerofitsparentcompany—without

AT&T’slucrativelong-distancephonemonopoly,thecompanymayhavepressured

BellLabstoforgofreewheelingbasicscienceinfavorofresearchwithmoreimmediatecommercialpayoffs

.13

ButwhileAT&T’smonopolyhelpedenableBellLab’sinventions,itdidnotnecessarilysupportthecommercializationofthosediscoveries.Infact,itwasnotuntilafederal

antitrustsettlementforcedAT&Ttostartlicensingitspatentstoothercompaniesthatmanyofthelab’sdiscoveriesweretransformedintousabletechnologies.This

settlement,knownasthe1956ConsentDecree,effectivelydumpedmorethan7,800patentsintothemarketandpermittedentrepreneurstoiterateonthoseideaswithout

CenterforSecurityandEmergingTechnology|7

interferencefromthecorporatebehemothofAT&T

.*

Beyondhelpingnewcompanies

emergeanddevelopnewproducts,theagreementalsorevealedthatAT&Thad

inventedanumberoftechnologies—includingtheansweringmachine,thefiberopticcable,andthespeakerphone—thatitchosenottoreleaseoutoffearsthattheycouldunderminethecompany’sbusinessmodel

.14

Thedecisionisaclassicexhibitoftheso-called“innovator’sdilemma,”asituationinwhichincumbentcompaniesarereluctanttointroducenewinnovationsthatcoulddisruptexistingproductsorlinesofbusiness

.15

Researchershavefoundthatcompetitioncancompellargeincumbentstoovercome

theinnovator’sdilemmaandmorereadilypursuedisruptivebreakthroughs

.16

PromotingCompetitiveAIInnovation

ThisanalysisoftheeconomicsliteraturerevealsafewgeneralattributesthatwouldcharacterizeahealthyandinnovativeAIecosystem,andwhichcouldguidethe

government’sfuturecompetitionpolicyinterventions.

First,promotingadiversifiedinnovationecosystem—oneinwhichmanydifferent

typesoffirmsarepursuingmanydifferenttypesofproducts—isimportantfordrivinglong-termAIprogress.Largeincumbentsandsmallupstartsapproachthetechnologydevelopmentprocessindifferentways,andeachplayauniqueroleinadvancingthestateoftheart.LargeincumbentsgenerallydevotemoreresourcestoR&D,andtheirsizeenablesthemtomoreeffectivelycompetewithforeignfirmsintheglobal

economy.However,thesefirmstendtofavormoreincrementalinnovation,andtheymaynotalwayshaveanincentivetointroducetechnologiesthatdisrupttheirexistingbusinessmodels.Assuch,smallerfirmsandstartupsarecriticalplayersinthe

innovationecosystem.Unbeholdentoexistingbusinessmodelsanddrivenbyadesire

*Specifically,the1956ConsentDecreerequiredAT&Ttolicenseallofitspatentsonaroyalty-freebasis.Previouslythesepatentswereprivatelyheldand,therefore,inaccessibletoexternalcompanies,

entrepreneurs,andinventors.Furthermore,theConsentDecreeprohibitedAT&Tfromenteringany

industryoutsideoftelecommunications,thuspreventingthecompanyfromusingitsmarketpowerto

impedeinnovatorsinothersectors.Economistsfoundthatopeningthecompany’svaultsresultedina

15%increaseinfollow-oninnovationinfieldsoutsideoftelecommunications,withsmall-andmedium-sizedcompaniesaccountingforasignificantshareofnewpatenting.Notably,the1956ConsentDecreehasspecificallybeencreditedwithspurringthecreationoftheU.S.semiconductorindustry,outofwhichgrewSiliconValley.WilliamShockleyofShockleySemiconductorandGordonTeallofTexas

InstrumentswereformerBellLabsemployees,forinstance,andtheConsentDecreeallowedthemtotransformtheiroriginalworkontransistorsintonewcompanies.Formore,see:Watzingeretal.,“HowAntitrustEnforcementCanSpurInnovation:BellLabsandthe1956ConsentDecree”;National

AcademyofSciences,“CapitalizingonNewNeedsandNewOpportunities:Government-IndustryPartnershipsinBiotechnologyandInformationTechnologies”(Washington,DC:TheNational

AcademiesPress,2001),

/10.17226/10281.

CenterforSecurityandEmergingTechnology|8

togrowanddifferentiatethemselvesfromincumbents,thesefirmsaremorelikelytointroducetechnologiesthatdisruptexistingmarketsorcreatenewmarketsaltogether.Byconstantlyinjectingnewideasandinventionsintotheeconomy,smallfirmsand

startupshelpdrivetheAIfrontierforward,pioneernovelapplications,andpreventmarketsfromgrowingstagnant.

Withoutthissortofdiversification,theU.S.AIsectorrisksbecominga“digital

monoculture,”afragileecosystemdominatedbyafewdevelopersthatproducenearlyidenticaltechnologies,andwhosufferfromsimilarvulnerabilitiesandblindspots

.17

ThecurrentU.S.marketforlargepre-trainedfoundationmodelsalreadydisplayssomeofthesecharacteristics:Foryears,theindustryhasbeendrivenbyasmallcadreof

highly-capitalizedcompanies(Amazon,Anthropic,Google,Meta,Microsoft,OpenAI)thathavefocusedonbuildingever-largerLLMs

.18

AnenvironmentinwhicheveryU.S.firmpursuesprogressinthesamewaynotonlylimitsinnovation,butitalsoincreasestheriskoftechnologicalsurprise

.19

Policymakershavebeguntorecognizethese

dangersinrecentmonthsasChineseAIdeveloperslikeDeepSeekreleasedproductsthatrivaltheperformanceoftheirU.S.counterpartsbutaremorecompetitiveintermsofpriceandaccessibility

.20

HadtheU.S.fosteredamorediversifiedAIecosystem,suchcompetitorsmayhaveemergeddomesticallyratherthanacrossthePacific.

Second,itisalsocrucialthatpolicymakerssupportacontestableandcompetitiveAImarket—thatis,oneinwhichitisrelativelyeasyforfirmstoenterandexit,andno

singlefirmwieldsoutsizedpowerovertheothers.Ifnewfirmsdonothavetheabilitytoeasilyenterthemarketandbuildsuccessfullinesofbusiness,theywillhavelittle

incentivetoparticipateintheAIindustry.Withoutthatinfluxofnewideasandtalent,theAImarketrisksgrowingstagnantanditsincumbentscomplacent;hadAT&Tfacedpotentialentryfromrivaltelecommunicationsfirms,thecompanywouldhavelikely

hadmoreincentivetocommercializeinventionsliketheansweringmachineor

speakerphoneinordertomaintainitsadvantage.AdiversifiedAIindustryrequiresa

steadystreamofentrepreneursandcompaniestoenterthemarket,andthisinflowwillbeseverelylimitedifthemarketisnotcontestable.

Similarly,fosteringcompetitionintheAImarketisalsocrucialfordrivinglong-term

innovation.Whileresearchershavefoundthattoomuchcompetitioncanreducefirms’incentivetoinnovate,insulatingcompaniesfromcompetitioncanhavethesame

effect

.21

Withoutthethreatofrivalsstealingmarketshare,establishedfirmshavelittlemotivationtopursuedisruptiveinnovation,andeventhosethatdomaybedeterred

fromcommercializingthosediscoveries.Economistshavelongunderscoredthewayscompetitioncanenergizemarketsandcompelfirmstoimproveproductsanddiversifytheirofferings

.22

BypromotingacompetitiveAIecosystem,policymakerscanensure

CenterforSecurityandEmergingTechnology|9

commercialdeveloperscontinuetodeliverconsistenttechnologicaldevelopmentsandadaptquicklytochangesinconsumerdemand,researchbreakthroughs,technologicalparadigms,andgeopoliticalforces.

ThecommercialAIsectorisstillinitsinfancy,anditsproducts,usecases,andbusinessmodelsareexpectedtochangesignificantlyinthecomingyears.Toensurethis

evolvingindustrycontinuestodeliverthetimely,consistentinnovationneededto

maintainlong-termU.S.leadershipinAI,policymakersshouldseektocultivatea

diversifiedAIecosystemandpromotecompetitiveandcontestableAImarkets.Whilethespecificpolicymeasuresrequiredtoachievethesegoalswilllikelychangeovertime,policymakersshouldgenerallyfocusonreducingbarrierstoentryandensuringestablishedfirmsdonotexploittheirmarketpowerinwaysthatexcludeorunfairlydisadvantagetheircompetitors.

CompetitiveMarketsandNationalSecurity

Whileagrowingcommunityofpolicymakersrecognizethebenefitsofmarket

competition,theideathatthegovernmentshouldfocusonpromotingadiversified,

contestable,andcompetitiveAIindustryremainssomewhatcontroversialinsome

circles.Whilethesecriticsmakeavarietyofclaims,theirargumentstypicallyboildowntothenotionthatonlylargecompaniescanmarshaltheresourcesandleverage

necessarytoadvanceU.S.technologyleadershipontheglobalstage,andthereforethesefirmsshouldbeshieldedfrompolicyinterventions(e.g.,antitrustenforcement,regulation)thatmightupsettheircurrentbusiness

.23

Manyofthecountry’smost

powerfultechnologycompanies—includingAmazon,Google,Meta,andMicrosoft—haveinvestedheavilyinlobbyingeffortsthatadvancethisview

.24

Whilethisargumentmayappearself-serving,particularlywhenpromotedbythe

technologyincumbentsthemselves,itdoeshavesomemerit.Giventheirextensive

resources,largecompaniesareindeedbetterequippedtocompeteintheglobal

economythansmallcompanies.Assuch,theyrepresentacriticalassetfortheUnitedStatesasitcompetesagainstChina—wherefirmshaveclosesupportfromthestate—andothercountriesforglobalAIdominance

.25

Furthermore,aswedetailinalater

section,theincumbenttechnologyfirmscontroluniquelyvastquantitiesofthedata,

computational,andfinancialresourcesrequiredtoproducemodernAIsystems.Thesefirmsareresponsibleforproducingsomeoftheworld’smostadvancedAImodels,and

weretheirdominancetodecline,theUnitedStateswouldalmostcertainlyseeitsleadershipinAIandothertechnologiesdiminished

.*

However,thisargumentisflawedforavarietyofreasons.Forone,aspreviously

discussed,insulatingAIfirmsfromcompetitioncouldmakethebroaderindustrylessdynamicandreducethespeedandscaleofAIinnovationoverthelongrun.

Incumbentscouldwieldtheirexistingmarketpowertokeeppotentialrivalsfrom

gaininggroundand,freefromcompetitivethreats,theywouldhavelessincentivetoinvestindisruptiveinventionsthemselves.ConsiderhowthemajorU.S.LLM

developershadforyearsgenerallyfollowedthesameresource-intensiveapproachtoAIdevelopment,andthenwereeventuallycaughtoffguardbyDeepSeek,aChinesecompanythat,duetoU.S.economiccontrols,hadbeenforcedtoinnovateamore

efficientapproachtoAIdevelopment

.26

Therisksofcomplacentincumbentsarewellunderstoodwithinthenationalsecuritycommunity.LeadersintheDepartmentofDefense(DOD)havelongdiscussedhowtheconsolidationofthedefenseindustrialbasehascontributedtoanoverrelianceonlargeprimes,whichhavefailedtokeeppacewithcommercialfirmsinmanyareasof

technology

.27

Thisproblemhasdriventhedepartmenttoinvestsignificantlyin

diversifyingthedefenseindustrialbaseandworkingwithmorenon-traditional

vendors

.28

IfthemarketforparticularAIproductsandservicesconsolidatesaroundasmallnumberoflargefirms,itcouldcreatesimilarproblemsfortheDOD—particularlyasAItoolsbecomeincreasinglyintegratedinnationalsecuritysystems

.29

Beyondharminginnovation,concentratedmarketscreateothersecurityrisks.Forone,overrelianceonasmallsetofcompaniesandproductscanleavecriticalinfrastructurevulnerabletodisruptions.TheCrowdStrikeoutageofJuly2024,whichdisabledIT

infrastructureacrossairports,hospitals,governmentagencies,andotherorganizations,putthisriskonfulldisplay

.30

LeadersintheDepartmentofDefense(DOD)havealsonotedthatconcentrationinthedefenseindustrialbasecanrestrictaccesstokey

componentsfordefensesystemsandreducethedepartment’sabilitytonegotiatefavorabletermswithcontractors

.31

Concentratedmarketscanalsoleavethecountryvulnerabletotechnologicalsurprisefromabroad.Considerthedecades-longsetbacksthatthe“BigThree”U.S.automakersfacedaftertheintroductionofsmaller,morefuel-efficientJapanesevehiclesinthe

*Itisworthnotingthateventhemostaggressivecompetitionpolicyinterventions—corporate

breakups—wouldnoteliminatethesecompaniesentirelybutratherspinoffpartsoftheirbusinessintoindependentorsubsidiaryentities.Whilethiswouldimpacttheoriginalorganization’sabilitytodevelopAIsystems,muchofthatcapacitywouldstillbepreservedwithinthebroadereconomy.

CenterforSecurityandEmergingTechnology|10

CenterforSecurityandEmergingTechnology|11

1970s.HadGeneralMotors,Ford,andChryslernotgrowncomplacentintheirmarketdominanceandstoppedinvestingininnovation,someexpertsargue,theywouldnot

havebeenasvulnerabletothissortofdisruption

.32

ItwouldnotbehardtoimagineasimilarfuturedisruptionintheAImarket,particularlygiventhewaythatU.S.firmsaredoublingdownonresource-intensiveLLMswhileatthesametimedevelopersinChinaareactivelyexploringalternativeAIparadigms

.33

Finally,shieldingincumbenttechnologyfirmsfromallpolicyinterventions(regulation,antitrustenforcement,etc.)inthenameofpromotingglobalcompetitivenesscanitselfcreaterisksforU.S.nationalsecurity.Allowingdomesticcompaniestopursuetheir

owninterests(i.e.,increaseprofits)oftenbenefitstheUnitedStatesbyproducing

beneficialinnovations,expandingtheeconomy,andgrowingthecountry’sgeopoliticalinfluence.However,therearealsosituationsinwhichcorporateinterestsdonotalignwithnationalsec