Asymmetry and Leapfrogging in a Step-by-Step R&D-Race.

We show that asymmetric equilibria may exist in an ex ante symmetric step-by-step R&D if product market competition is intense. The corresponding symmetric equilibrium is unstable and therefore less likely the one selected, while the asymmetric ones result in lower economic growth (reversing earlier results) but higher industry profits. Secondly, we show that the assumption of 'no leap-'frogging' imbodied in the step-by-step structure of the model imposes no restrictions on the optimal strategies if and only if product market competition is small and imitation is easy.