Aghion, PhilippeBloom, NickBlundell, RichardGriffith, RachelHowitt, Peter2010-10-142005Aghion, Philippe, Nick Bloom, Richard Blundell, Rachel Griffith, and Peter Howitt. 2005. Competition and innovation: An inverted-U relationship. Quarterly Journal of Economics 120, no. 2: 701-728.1531-46500033-5533http://nrs.harvard.edu/urn-3:HUL.InstRepos:4481507This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model—that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck—are both supported by the data.en-USJournal Article2010-10-1410.1162/0033553053970214