Exploitation versus Exploration in Market Competition

A general simulation model of market competition is developed to explore the effectiveness of and interactions between different types of product exploration and exploitation strategies, that is, innovation, imitation and process improvement. The model, like real markets, is highly non‐linear such that analytical solutions are not possible. We use simulation experiments to examine firm survival and the effectiveness of different strategies under different market conditions including competitors' strategies, how long it takes for each strategy to bear fruit and how costly it is, and the timing, growth and duration of product life cycles. The model is implemented on the Internet and provides the basis for further experiments to examine the impact of different combinations of firm strategies on survival and performance.

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