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We examine how political ties influence firm performance and efficiency in competition. We argue that competition hurts firm performance but enhances their efficiency by creating the environment for learning and improvement. In this process, political ties have a double-edged role: ties protect firms from competition and strengthen their performance relative to their unconnected peers, but the same protection effect reduces connected firms’ incentives in learning and thus their efficiency, a phenomenon known as the “red queen” effect. We further distinguish between ties to government executives and legislators, as well as whether the competitive pressures arise from foreign or domestic rivals. Findings from analyses of the Chinese TV manufacturing industry between 1993 and 2003 largely support our predictions. This study enriches our understanding of the role of political ties in competition.