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.