Technological escalation describes the fact that whenever two parties are in competition, each side tends to employ continuing technological improvements to defeat the other. Technology is defined here as a creative invention, be it an object or a method of using an object. This is a natural result of mankind's use of our brains, and the nature of science and technology that understanding and innovations build on each other.
Escalation is usually a negative term, meaning to make bigger in a bad way. However, if two companies are in an escalating war to produce the best widget, the consumer benefits because they get a choice between better and better widgets. In this interpretation, good modern illustrations are the comics Spy vs. Spy and the vicious circle of email spam filters vs. spams by the coding geeks and the spammers.

Objects and methods
There is a philosophical difference of opinion on what constitutes the advancement of civilization, and technological progress lies at the heart of the discussion. One view holds that the most advanced civilization is the one that is the most peaceful, compassionate, tolerant (of non-evil acts), just, and worldly.
The other view holds that the most advanced civilization is the one which has the most advanced technology; that civilization 'deserves' to succeed and defeat others, perhaps subjugating them in the process.
One might fairly question if these are, in fact, really in conflict, or if this is merely a misunderstanding by one or both parties. Such questioning would ask such questions as:

Is the purpose of technology an indicator of advancement or the cause of advancement?
What ethical constructs should rule the use of technology (power) to further the desires of a social group?
How should social groups act towards each other when they come into conflict?
Is technological escalation akin to 'greed' (one of the '7 deadly sins') in that a controlled or moderate amount is a healthy thing serving to motivate one towards a better life, while an immoderate or unrestrained use leads inevitably to evil acts? Motives
Technological escalation has occurred in many wars, and been key to victory in some of their battles — the longbows at the Battle of Agincourt and the chariots of the Hyksos. Clearly other factors exist as in the Vietnam War, the United States utilized a far higher level of technology and production than the Viet Cong, and the technology specific to fighting in Southeast Asia did improve during the war progressed — but other factors overshadowed this technological superiority, and the United States ended up losing.
In the present day, the effects of technological escalation on the largest scales are not disputed: constant threat of terrorism and asymmetric warfare due to, for instance, nuclear proliferation spreading to militant groups and individuals, and a great degree of tension and confrontation between an increasing number of industrial states that have the capacity to wipe out each other's populations — thus, an increasing percentage of the skills and energy and resources of each such power is devoted to anticipating and preventing the conflict arising from the weapons that they, due to whatever motives, feel compelled to produce.
However, these effects are often taken as inevitable or manageable, and much more explicit attention is paid to the commercial effects of technological escalation, which is most usually known by the euphemism innovation.
Examples of commercial technological escalation are often indistinguishable from examples of pro-technology propaganda, of which the 1980s AI boom and much larger and global 1990s dotcom boom are the best known examples. In each case, the applicability of expert systems and e-commerce respectively had yet to be proven, but the same factors as above led to the invented "need" to have the "latest and greatest" technology to brag about in one's advertising, and to have at least some of one's portfolio in the "sexy", "high-tech", "growth" stocks — which of course turned out largely to be incapable of sustaining the required profitability.
The effects of technological escalation are also trivially visible in the computer gaming world — where access to higher Internet bandwidth and faster computers tend to determine success in the popular first person shooter and even, increasingly, the real time strategy computer games. This of course leads to a larger and larger percentage of one's income being "invested" in computer hardware for these purposes, perhaps in pursuit of some prize or recognition for success at a game.