Following or Running Away from the Market Leader? The Influences of Environmental Uncertainty and Market Leadership

Abstract

Competitive dynamics theory suggests that rival firms imitate other competing firms with similar resources to maintain competitive parity while are likely to differentiate from the market leader to avoid its dangerous retaliation. According to neo‐institutional theory, in highly uncertain environments, rivals are likely to imitate the market leader because they assume it possesses superior market knowledge. Combining these two lines of argument, we argue that a rival's decision whether to follow or run away from the market leader depends on environmental uncertainty and market leadership, the latter expressing the extent to which the market leader owns a larger market share vis‐à‐vis the other rivals. The empirical analysis relies on data about the product line strategies of 66 mobile phone vendors in the 1994–2010 period. The results show that when environmental uncertainty is low, the relationship between a firm's market leadership and imitation by its rivals is negative, whereas in conditions of high environmental uncertainty, imitation of the market leader increases with its market leadership.