This study extends optimal distinctiveness (OD) theory by examining firms’ optimal positioning strategies relative to their close rivals, rather than categorical benchmarks. We investigate firms’ repositioning strategies in response to rivals’ moves, considering the dual pressures of differentiation and similarity within dyadic relationships. We argue that firms follow rivals moving away to maintain similarity, driven by audience expectations and informational cues. Conversely, firms differentiate from rivals moving closer to preserve uniqueness and reduce competitive pressures. We identify key moderators influencing these responses: rival’s analyst coverage, investment recommendation upgrades, R&D intensity of the environment, and analyst overlap between firms. We leverage advanced natural language processing techniques to measure firm similarity and movements of 4,493 publicly listed U.S. firms from 2001 to 2021. Our findings provide support for our theoretical predictions.
