When firms prevent imitation, they encourage substitution. We do not know if this trade-off is dynamic or static, nor do we know the contingencies as to when this trade-off occurs. While prior literature has examined the environmental factors affecting this relationship, we turn to firm-specific characteristics to show that not all firms are equally affected by this interdependency. We study this paradox using a natural experiment – the Biologics Price Competition and Innovation Act of 2009. We show that the substitution paradox is, in fact, dynamic and subject to boundary conditions. Firm-specific causal ambiguity and other impediments to asset accumulation are essential contingencies affecting a firm's decision-making. The results support our hypotheses while drawing important implications about the applicability of the VRIN framework.
