Competition and Innovation in Markets with Technology Leaders

In this article, we consider technology leaders (which are innovators) and followers non-innovators) to provide a new theoretical explanation for the well-cited empirical evidence of an inverted-U relationship between competition aggregate innovation. We two-stage game with deterministic Research Development (R&D) process, where first determine their R&D investments simultaneously then all outputs simultaneously. show that innovation occurs if is affected by number followers. However, presence more decreases individual while increasing investments. If total firms remains same but composition changes in favor (followers), decrease (increase) increase (decrease). The can be U-shaped intensity measured product substitutability. Contrary standard expectation, may reduce welfare.