AI regulatory strategies for digital sovereignty: The role of geopolitics and technological disparities

Abstract This article examines the European Union’s (EU) strategy to assert digital sovereignty through stringent artificial intelligence (AI) regulation, situated within evolving geopolitical dynamics and widening technological disparities with the United States (US). A game-theoretic model is developed to analyze the strategic dilemma confronting EU regulators, who must balance the protection of domestic market share for local firms against maintaining access to leading AI technologies. The analysis shows that stringent regulation constitutes a rational strategy only when it disproportionately constrains foreign firms and when foreign technological advantages in the domestic market are significant but not overwhelming. Applying this framework to the EU AI Act’s provisions on general-purpose AI, the study illustrates that the effectiveness of the EU’s approach is contingent on its redistributive effect on domestic market power, the level of US technological competitiveness, and the state of transatlantic cooperation.