Industrial organization economists measure market concentration using the Herfindahl-Hirschman Index (HHI) — the sum of squared market shares. An HHI above 2,500 indicates a highly concentrated market; above 5,000 suggests oligopoly or near-monopoly. The AI supply chain registers some of the highest concentration levels in modern industrial history.

This level of concentration is historically unusual. Standard Oil at its peak controlled roughly 90% of US refining — comparable to ASML's EUV monopoly or China's rare earth refining dominance. The key difference: the AI supply chain concentrates sequentially, with each chokepoint dependent on the one before it.

Market structure matters for welfare. Economic theory identifies several mechanisms through which concentration can harm consumers and innovation: higher prices (market power), reduced output, diminished incentives to innovate once dominance is secure, and the ability to foreclose competition in adjacent markets through vertical integration or tying.

The AI supply chain registers some of the highest concentration levels in modern industrial history — with the critical distinction that these chokepoints are serially dependent.