Competition and innovation: An inverted-u relationship

Philippe Aghion, Nick Bloom, Richard Blundell, Rachel Griffith, Peter Howitt

Research output: Contribution to journalArticlepeer-review


This 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. © 2005 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Original languageEnglish
Pages (from-to)701-728
Number of pages27
JournalQuarterly Journal of Economics
Issue number2
Publication statusPublished - May 2005


Dive into the research topics of 'Competition and innovation: An inverted-u relationship'. Together they form a unique fingerprint.

Cite this