Empirical studies have uncovered an inverted-U relationship between product-market competition and innovation. This is … inconsistent with the original Schumpeterian Model, where greater competition reduces the profitability of innovation. We show that … the model can predict the inverted-U if the innovators' talent is heterogenous, and privately observable. With competition …

this standard model of endogenous growth theory, competition has a negative incentive effect. Accordingly, a larger …, too much initial competition may ultimately stall the growth process. Moreover, by introducing asymmetry in market …-power, competition gives rise to static welfare losses. In economies with a small positive growth rate, welfare losses due to varying …