Conceptual framework: first, for firms far from the technology frontier, an increase in competition reduces incentives to innovate because ex post rents from innovation are eroded by new entrants (Schumpeter's appropriability argument)
As firms approach the frontier, however, competition can icnrease incentives to innovate because it reduces firm' preinnovation rents by more than it reduces their postinnovation rents. Escape compeititon effects.