RAND – Evaluating Natural Monopoly Conditions in the AI Foundation Model Market, 2024

The 2024 RAND report evaluates whether the AI foundation model market meets conditions for a natural monopoly. This report investigates foundation models—large AI models trained on extensive datasets that power various applications. By examining economic characteristics, the authors assess whether a natural monopoly exists in this market, where serving the full demand might be more cost-effective through a single provider. Through current data and hypothetical scenarios, the report explores economic and social impacts of foundation models, including scaling costs, network effects, and possible regulation needs if monopolistic risks become prominent. RAND suggests that, while characteristics of a natural monopoly are present, regulatory actions should remain flexible, responding to future economic changes.