How to avoid being held up by the labs - by Luis Garicano
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How to avoid being held up by the labs<br>Open banking, harnesses, and the strongest economic force of all
Luis Garicano<br>Jul 06, 2026
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Luis Garicano and Jesús Saa-Requejo*<br>On June 12, the US used export controls to cut foreign access to Anthropic’s newest models, ostensibly in response to reports of jailbreaks and cybersecurity risks. The episode represents the strongest objection posed to our ‘smart second-mover’ strategy: that the more Europe builds its economy around models it does not own, the more it makes itself hostage to whoever does own them.<br>To recall, the pillars of our policy, presented over three posts here, are the following:<br>Race to adopt and implement frontier models rather than build those models, both because the value capture lies in the messy work of implementation, not the model layer, and because the race to lead is lost.
Regulate to keep the model layer competitive, ensuring interoperability between closed-weight and open-weight models.
Facilitate the formation of ecosystems of companies that lead the AI adoption.
Build, as insurance, a shared open-weight model a tier or two behind the frontier.
The risk of a hold-up is omnipresent in business investment decisions. Once any firm has made investments specific to one supplier, the supplier can seize the returns on everything the firm invested by exploiting the bottleneck, for instance by threatening to withhold the promised supply.<br>Oliver Williamson won a Nobel Memorial Prize in economics in 2009 for analysing the consequences of hold-up and notably how it affects the buy-versus-make decision.1 In previous generations of software and IT, many firms, notably in Europe, have suffered the consequences: Apple has taken a 30% cut on all app downloads from its platform; industrial and service companies built around Oracle or SAP’s custom code routinely spend years and millions of dollars trying to extract themselves, or are instead forced to buy expensive upgrades at the rhythm set by these players.<br>There are four forms of hold-up that need to be addressed in the large language model space. The first is access: the model can be withdrawn, as we have just experienced. The second is price: terms can change after users have sunk costs. The third is workflow: the prompts, agents, memories, traces, evaluations and permissions that make the system useful become non-portable. The fourth, and the one that concerns us more here, is knowledge expropriation: the supplier can learn from the customer’s activity and use this knowledge to commoditise it or to compete with the customer.<br>The fear of hold-up is not a European neurosis. AI models, warned Microsoft’s Satya Nadella in a recent post, continuously absorb the expertise of the organisations that use them and commoditise it, and for a firm to defend itself from such expropriation it needs a learning loop that it owns, making it interoperable so that it can swap the generalist model underneath without losing the expertise built on top.<br>Alex Karp on CNBC argued that enterprise customers are convinced the labs are ‘stealing the weights and alpha [i.e. the competitive advantage] of my business”; his remedy, with Nvidia, was to run on open-weight models the customer keeps locally. It goes without saying that both Karp and Nadella are doing a sales pitch in favour of their own business, since Microsoft sells the platform and Palantir has solutions that do just what Karp is arguing for, as we discuss below.<br>But this does not mean they do not have a point. In fact, both statements make the same correct point: no serious company should build its core workflows around a seller unless it can be sure that proprietary data and business logic cannot be reused to train future models or trap the customer. And yet the closed-model frontier labs’ business model implicitly assumes otherwise. When Anthropic launched its first design product, their own product chief had been sitting on the board of the incumbent customer it was about to undercut, Figma, resigning three days before launch. Figma’s shares halved on the year. Anthropic built Claude Code, its coding product, after watching Cursor, a top customer, succeed. It then expanded into other verticals such as legal, finance and security.<br>The European debate offers no real answer to this question. Some seek a subsidized European champion, which would indeed protect, but at a forbidding cost. The second view is that renting American software served Europe well for twenty years and we can continue doing it. But renting does not work as well when the platform can suddenly be disconnected, like we learned from the embargo and even less when the platform can duplicate the business models built on top. A third view is that Europe should look for leverage in other non-model domains, especially by building lots of compute.<br>Our suggestion is to chart something of a...