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 …

We test whether intellectual property rights (IPRs) foster or hinder innovation by estimating IV structural equations … actually use IPRs. The further impact of fewer competitors is to raise R&D, when initial competition is strong, but to reduce … it, when initial competition is weak ("inverted U"). …