Competition, Innovation, Inflation

(a) (10 rp) In their 2005 paper1, Philippe Aghion, Nick Bloom, Richard Blundell, Rachel Griffith, and Peter Howitt found the inverted-U empirical relationship between the level of competition and the level of innovation in various industries. That is, not much innovation is seen in very competitive industries as well as in highly concentrated industries, most patents are acquired by firms in moderately competitive industries. Explain why this may be the case.