Research often treats competition and collaboration as separate phenomena, overlooking their interdependence. Our study bridges that gap by examining this interdependence through three concepts: positional deficit, structural balance theory (SBT) boundary conditions, and proximity-bound tie formation. Using a longitudinal dataset of over 7 million dyad-year observations across 1,258 firms, and temporal exponential random graph models (TERGMs), we find that positional deficit, which occurs when firms face excessive competition relative to collaboration, prompts firms to deescalate rivalry by seeking new partnerships. We identify commercial contexts as a boundary condition for SBT, showing that the friend of my friend is my enemy, the enemy of my enemy is my enemy, and the enemy of my friend is often my friend. Additionally, firms rarely compete or collaborate beyond three degrees of separation, illustrating a proximity-bound principle. These insights advance understanding of network dynamics and offer actionable guidance for scholars and managers navigating interfirm relationships.
