We estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the personal computer microprocessor industry. Firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions, anticipating product improvements and price declines. Consistent with Schumpeter, we find that the rate of innovation in product quality would be 4.2 percent higher without AMD present, though higher prices would reduce consumer surplus by $12 billion per year. Comparative statics illustrate the role of product durability and provide implications of the model for other industries.

We consider a dynamic limit order market in which traders optimally choose whether to acquire information about the asset and the type of order to submit. We numerically solve for the equilibrium and demonstrate that the market is a “volatility multiplier”: prices are more volatile than the fundamental value of the asset. This effect increases when the fundamental value has high volatility and with asymmetric information across traders. Changes in the microstructure noise are negatively correlated with changes in the estimated fundamental value, implying that asset betas estimated from high-frequency data will be incorrect.

We model a dynamic limit order market as a stochastic sequential game with rational traders. Since the model is analytically intractable, we provide an algorithm based on Pakes and McGuire (2001) to find a stationary Markov‐perfect equilibrium. We then generate artificial time series and perform comparative dynamics. Conditional on a transaction, the midpoint of the quoted prices is not a good proxy for the true value. Further, transaction costs paid by market order submitters are negative on average, and negatively correlated with the effective spread. Reducing the tick size is not Pareto improving but increases total investor surplus.