Technologically oriented firms must allocate resources between exploration (research) and exploitation (development) activities. March (1991) proposes that the ecology of competition will directly influence the degree of emphasis on exploration and exploitation activities by organizations; the greater the competition, the greater the need to emphasize exploration activities. Exploratory case studies and real market data indicate that this is seldom true. This study examines this issue by adopting a two-pronged approach. First, a game-theoretic model is used to gain insights regarding the optimal strategies for firms. Second, the intuition from game theoretic analysis is enhanced and validated using complex adaptive systems approach. An agent based model is used to simulate the complex market place where competitors R&D strategies directly affect the focal firmís R&D strategy outcomes. The authors find that organizational adaptation to dynamic environments significantly impacts the firmís performance over time.