Follow the Tide? Firms’ exploration and spatial competition in the product space

How do firms respond to their competitors' exploration? Prior literature has mostly drawn on vicarious learning to argue that firms will simply follow their competitors to explore. While plausible, however, it overlooks the directions toward which competitors pursue relative to focal firms. Because exploration is defined from the viewpoint of a given firm, competitors' exploration is not necessarily considered exploratory by the focal firm. Emphasizing the spatial competition perspective, we maintain that competitors may explore away from or closer towards a firm's position, which can largely shape the effect of competitors' exploration on its own exploration. By analyzing the product market repositioning of U.S. firms from 1997 to 2017, we find evidence supporting spatial competition. Competitors' exploration is more likely to drive a firm to explore when these competitors converge towards its market position (i.e., competitive convergence ). We also find that firms engage in more exploration when competitors' exploration is accompanied by greater competitor churn . These findings extend understanding of how firms strategize their exploration and handle spatial competition in the product space.