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South Korea’s Antitrust Body Raises Concerns Over AI Market Competition

By  |  December 18, 2024
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South Korea’s antitrust regulator has highlighted several structural factors that could stifle fair competition and harm consumers in the rapidly evolving generative artificial intelligence (AI) market. The Korea Fair Trade Commission (KFTC) outlined these concerns in a policy report titled “Generative AI and Competition”, released on December 17. The report provides the first in-depth analysis of the domestic AI landscape since the global rise of technologies like ChatGPT in 2022.

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    According to a statement from the KFTC, the generative AI market presents significant barriers to entry due to its inherently complex value chain, which spans infrastructure, development, and implementation. Each stage demands immense financial investment and advanced technical expertise, making it difficult for new players to compete against established companies. As these incumbents achieve economies of scale, the challenges for market newcomers become even more pronounced.

    International Dominance and Domestic Challenges

    The report noted that South Korea faces significant competition from global players in key sectors underpinning generative AI. For instance, Nvidia holds a dominant position in AI semiconductors, competing with international rivals like Intel and AMD while domestic firms such as Sapeon Korea, Rebellions, and Furiosa AI attempt to establish a foothold.

    Similarly, foreign companies lead the cloud computing services market, with Amazon Web Services, Microsoft, and Google maintaining a significant edge over domestic providers such as Naver Cloud, KT Cloud, and NHN Cloud. According to a statement from the KFTC, these disparities in market power raise questions about the ability of South Korean firms to compete effectively in the global AI race.

    Related: South Korean AI Chipmakers Rebellions and Sapeon Korea Merge to Compete Globally

    The foundation model sector—crucial for enabling AI functionalities—is also dominated by major global tech firms, including Google, Meta, OpenAI, Microsoft, and Nvidia. Despite efforts by South Korean companies like Naver, Kakao, LG, KT, NC Soft, and Upstage to make inroads, they remain at a distinct competitive disadvantage due to their limited access to resources and infrastructure.

    Regulatory Focus on Antitrust Risks

    The KFTC has expressed concerns over the potential for anti-competitive practices in the generative AI market. The report warns that dominant players may restrict access to essential resources, engage in bundled sales, impose exclusive deals, or misuse proprietary technology during partnerships. These practices could further entrench market leaders, making it even harder for smaller or newer competitors to gain traction.

    Additionally, the report raises the possibility of vertically integrated companies exploiting their market dominance by leveraging investments and acquisitions to limit competition. Such actions could not only stifle innovation but also result in higher costs for consumers and reduced diversity in the market.

    Future Oversight and Regulation

    In light of these challenges, the KFTC announced plans to closely monitor the generative AI market and consider implementing regulatory measures starting next year. A particular focus will be on AI data collection practices and the broader implications of emerging technologies.

    Source: KFTC