1. Asset Stock Accumulation and Sustainability of Competitive Advantage
Ingemar Dierickx and Karel Cool
Ingemar Dierickx – PhD, MBA, and law degree from Harvard
Was at INSEAD for over a decade
Professor of Negotiation Analysis at Moscow School of Management at the Amsterdam Institute of Finance
Karel Cool –Guilford College, not sure where he got his PhD from.
Professor of SM at INSEAD
Management Science, Vol. 35 No. 12 (December, 1989) pg
By Amit Jain

2. Purpose Discuss limitations of strategic factor markets
Suggest complementary framework based on asset stock accumulation
Assess sustainability of a firm’s competitive advantage
Markets are where firms buy and sell the resources necessary to implement their strategies (Hirshleifer 1980).
In the case of markets for companies, firms wishing to implement a strategy of product diversification may decide to do so by acquiring other firms. In this sense, because an acquired firm is the resource required to implement a firm's diversification strategy, the market
for companies is a strategic factor market.

3. Strategic Factor Markets
Shift focus from products to resources
From creating imperfectly competitive product markets to strategic factor markets
Strategic Factor Market
a market where the resources necessary to implement a strategy are acquired (Barney 1986)
Ex. Market for research scientists or companies
Imperfections in strategic factor markets
Created when different firms have different expectations about future value of a strategic resource
Ex. Firm controls all resources or unique resources
Ways to develop better expectations of strategic assets
Environmental Analysis (competitive environment)
Superior information (unique skills and capabilities)
Good fortune (luck) is a result of unexpected positive outcomes
Markets are where firms buy and sell the resources necessary to implement their strategies (Hirshleifer 1980).
In the case of markets for companies, firms wishing to implement a strategy of product diversification may decide to do so by acquiring other firms. In this sense, because an acquired firm is the resource required to implement a firm's diversification strategy, the market
for companies is a strategic factor market.

4. Strategic Factor Markets: Limitations
Non-tradability
All resources cannot be traded (bought or sold)
Ex. Reputation for quality or “toughness”
Ex. Trust is not a commodity which can be bought very easily (Arrow 1974)
Asset Stock Accumulation
Idiosyncratic nature of firm-specific assets (Williamson 1979)
Highly firm-specific assets acquired through job learning and training, thus accumulated internally
Can a business school perceived as a teaching institution purchase a reputation for research excellence in a market for "research institute reputations"? Can scholars buy their reputation for quality work in a strategic factor market?
My favorite quote: trust
“Generic labor” is rented in market, he calls them undifferentiatied inputs

5. Accumulation of Asset Stocks
Value of non-tradable assets
Constraints to building asset exist if necessary for product market implementation
Strategic Asset Stocks
Accumulated by choosing appropriate time paths of flows over a period of time
Flows can be adjusted instantaneously, whereas stocks cannot and stocks depreciate overtime (example: Bathtub)
Asset Stock
Depreciates
Increase R&D to accumulate asset stock
What is the value of nontradable assets? Unavailable!
Ex. Reputation for quality -> consistency over time
Ex. Reputation for toughness -> history of aggressive behavior
Strategic Asset Stock

6. Sustainability of Privileged Asset Positions
Imitation of Asset Stocks
time compression diseconomies
asset mass efficiencies
interconnectedness of asset stocks
asset erosion
causal ambiguity
Substitution of Asset Stocks
Can a business school perceived as a teaching institution purchase a reputation for research excellence in a market for "research institute reputations"? Can scholars buy their reputation for quality work in a strategic factor market?
My favorite quote: trust
“Generic labor” is rented in market, he calls them undifferentiatied inputs

7. Conclusion and Comments
Resources matter for product markets (Wernerfelt 1984) that are tradable (Barney 1986) and non- tradable
Asset stocks are strategic to the extent they are non-tradable (i.e. asset stock accumulation), non- imitable, and non-substitutable
Barney (1989) Comment
Although asset accumulation is built over time and non- tradable, there are costs associated with accumulating these assets
Hence strategic factor markets enter to compare costs of developing different assets
Asset stock accumulation is included in strategic factor markets, but not necessarily clear prior to Dierickx and Cool 1989.
Strategic factor markets does not consider the opportunity costs for tradeable assets and nontradable assets
Asset stock accumulation is a non-issue