This paper discusses the role of technological spillovers and technological

races in dynamic strategic interactions setup. Two multiproduct regional

monopolies invest simultaneously into new products creation and into further

development of the quality of these products. They can benefit from the

costless technological spillover in the development of each such a product

in the case the other’s quality is higher. At the same time they cooperate in

the joint creation of new products. The dynamic interaction in this setting

previously considered only the situation with one of the monopolies being

the constant technological leader. In this paper the full spectrum of possible

equilibria of the game is studied. It is demonstrated, that the closer in terms

of technology two firms are to each other, the more intense is the competition

and overall research output is threatened, resembling inverted-U relationship

between technology and competition.