We specify and estimate a dynamic game to study the equilibrium relationship between market structure and innovation in the automobile industry. The quality of each firm’s product for the average consumer, the key state variable, is modeled as stochastically increasing in innovation, the dynamic control, which is proxied by patent applications. Equilibrium innovation is a function of market structure, the vector of quality levels of all active firms, and the cost of R&D. Our main findings are as follows: (a) optimal innovation has an inverted-U shape in own quality; (b) holding own quality constant, innovation is declining in average rival quality but increasing in quality dispersion; and (c) following entry, each incumbent’s innovation declines, but aggregate innovation increases in most market structures. These findings are broadly consistent with the Schumpeterian hypothesis that market power leads to more innovation.

This paper investigates whether one of the most important U.S. policies toward Africa of the past few decades achieved its desired result. In 2000, the United States dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the act was applied selectively to both countries and products, we can estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the endogeneity-of-policy critique of standard difference-in-differences estimation than if either a country- or a product-level analysis was performed separately. Despite the fact that the AGOA product list was chosen to not include import-sensitive products and despite the general challenges of transaction costs in African countries, we find that AGOA had a large and robust impact on apparel imports into the United States, as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the AGOA exports were not merely diverted from other destinations. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.