The optimality of R&D competition and its implications on growth andwelfare are analyzed in a dynamic general equilibrium model. By explicitlyincorporating pre-emptive R&D competition, the relationship between theintensity of competition and the growth rate can be investigated. This papershows that in the competitive growth path, the number of research firms islarger and the rate of growth is lower than in the optimal growth path. Byreducing entry into R&D competition by imposing an entry fee from whichthe winner of competition is subsidized, this sub-optimality arising fromexcessive competition could be overcome.