The Dynamics of Multimarket Competition in Exploration and Exploitation Activities

Prior studies of multimarket contact have investigated “exploitation” rather than “exploration” activities. We contrast effects of multimarket contact on entry and exit dynamics in these two settings and propose that, although in exploitation, firms seek to optimize multimarket contact based on mutual forbearance benefits, in exploration, firms instead seek to reduce uncertainties through mimetic entry and exit. Analyses of biopharmaceutical firms' competitive dynamics from 1989 to 1999 support our model. We also find that multimarket contact in exploration leads to competitive entry and exit in exploitation, but not vice versa. We discuss implications for theory and practice.