Catching-up or Leapfrogging ? The Effects of Competition on Innovation and Growth.

The main objective of this paper is to analyze the links between product market competition, innovation and growth. We capture the idea that firms innovate in order to try to escape - albeit temporarily - from the pressure of competition exerted on them by their rivals. At each date, an industry may be either in a leveled or in an unleveled position. In an unleveled industry, we assume that if a laggard firm succeds in innovating, it will either leapfrog the leader with some probability or catch-up both its knowledge and its technology with the complementary probability.