The last shall be first: Innovation as a head-to-head race

Uncertainty about the value of a contested innovation induces leaders and laggards to update their expectations in opposite directions. We characterize situations in which firms that have obtained an initial advantage are not the most likely to achieve final success. In spite of amplifying a leader’s advantage, greater contest intensity facilitates this effect, challenging the view that laggards require support to remain competitive. • In innovation races, players face uncertainty about the value of innovation. • Belief updating can offset a leader’s technological advantage. • Innovation can become a head-to-head race where laggards are more likely to win. • Rewarding small advances and reducing noise are suitable for head-to-head races. • A policy promoting inexpensive and transparent patenting foster R&D competition.