Investing in capabilities: bidding in strategic factor markets with costly information
Article first published online: 3 MAR 2008
Copyright © 2008 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Special Issue: Frontiers of Strategic Management Research
Volume 29, Issue 2-3, pages 227–239, March - April 2008
How to Cite
Maritan, C. A. and Florence, R. E. (2008), Investing in capabilities: bidding in strategic factor markets with costly information. Manage. Decis. Econ., 29: 227–239. doi: 10.1002/mde.1385
- Issue published online: 3 MAR 2008
- Article first published online: 3 MAR 2008
We explore how firms invest in capabilities by acquiring assets in strategic factor markets. We formalize the problem using an auction model in which heterogeneous firms bid for an asset to investigate relationships among expected returns to the investment, information used to estimate the expected returns and information used to estimate the expected bids from competitors. Our results demonstrate the importance of recognizing different components of the expected returns and the importance of considering the cost of acquiring information to inform the bid. Through this analysis we illustrate complementarities and trade-offs that are involved in the process of making investment decisions. Copyright © 2008 John Wiley & Sons, Ltd.