I would guess that if there are economies of scale, concentrating production lowers the average unit cost and thus lead to more profits and thus more capacity for investment into R&D.
If, say, all steel production was done by 1-employee companies competing against each other, I don't think any one would be able to afford any serious investement.
From your strawman example, 1-employee companies wouldn't be competitive and even a small team would be able to offer more value than anybody else competing for funding due to deficiencies of scale.
If, say, all steel production was done by 1-employee companies competing against each other, I don't think any one would be able to afford any serious investement.