1. Asset stock accumulation and sustainability of competitive advantage
Dierickx and Cool (1989)
Management Science
Presented by Hyeonsuh Lee

2. Background
Strategy literature focused too narrowly on privileged product market positions as a basis for competitive advantage.
Critical resources are accumulated rather than acquired in “strategic factor markets” (Barney, 1986).
Creates analytical and managerial problems
Analytical problem: the opportunity cost of scarce assets should be considered. Otherwise, returns are inflated.
Managerial problem: managers need to realize that bundle of assets leads to their firm’s success  needs to be protected from imitation and substitution.
Barney (1986): “strategic factor markets”
Where firms acquire resources necessary for strategy implementation
Under the assumption of complete input markets, there are neither “strategic” input factors nor “unique” skills and resources
Above normal returns due to superior information, luck, or both.

3. Objective 1) Discuss limitations of “strategic factor market” concept
2) Complementary framework based on notion of asset stock accumulation
3) Develop guidelines for assessing the sustainability of a firm’s competitive advantage

4. Incomplete vs. Imperfect factor markets
Barney (1986) focuses on “imperfect” markets.  can all assets needed to implement a strategy be bought? NO (e.g., reputation)
The implementation of a strategy may require assets which are non-appropriable and/or firm-specific markets for such assets do not exist
Therefore, the central question is not merely whether strategic factor markets are perfect, but whether they are complete. Indeed, to what extent can factors which are freely traded in open markets be termed "strategic"?
The fact that factor markets are incomplete, in addition to creating barriers to exit because of non-salvageable specific investments, also implies the potential for sustainable competitive advantage and above-normal returns.

5. Accumulation of non-tradeable asset stocks
When neither the desired strategic input factor itself nor any close substitute for it can be acquired through a market, firms are constrained to "building" it.
Strategic asset is the cumulative result of adhering to a set of consistent policies over a period of time (“flows”). Put differently, strategic asset stocks are accumulated by choosing appropriate time paths of flows over a period of time.
R&D bathtub
Stock of know how: current amount of water in the tub
Flow: current R&D spending
Flows can be adjusted instantaneously, but stocks cannot!
Key task: appropriate time paths of relevant flow variables must be chosen to build required stocks of critical assets.
 Strategic asset stocks are non-tradeable, non-imitable, and non-substitutable

6. Sustainability of privileged asset position
If assets cannot be bought: imitation or substitution
Imitation of asset stocks
Time compression diseconomies: early-mover advantages
Asset mass efficiencies: “success breeds success”
Interconnectedness of asset stocks
Asset erosion
Causal ambiguity
Substitution of asset stocks
Threat that successful substitution renders original asset stocks obsolete  they no longer create value to the buyer.

7. Discussion
According to Kogut and Zander (1992), firms can deter imitation by recombining their current capabilities (combinative capabilities) Since new ways of cooperating cannot be easily acquired, growth of firms occur by building on the social relationships within in a firm.
Combinative capabilities: “the intersection of the capability of the firm to exploit its knowledge and the unexplored potential of the technology”
How does the combinative capability be connected to the asset stock accumulation?