How do acquisitions of competitors by new entrants or by other existing competitors affect a firm's performance, and how should a firm respond to such competitive actions? Acquisition research argues that because acquisitions cause consolidation, which can lead to collusive synergies, acquisitions by rivals will lead to decreased competitive intensity. In contrast, competitive dynamics research regards acquisitions as competitive moves that are difficult to match, and can have negative effects on a firm's performance. Based on an analysis of 1316 public software firms in the United States during 1980-2005, our findings are consistent with the prediction of the competitive dynamics research, that acquisitions of rivals in a firm's product segment negatively affect firm performance. Contrary to the competitive dynamics research, however, we find that matching the move with one's own acquisition has a further negative effect on firm performance. A focal firm's acquisition in another segment is the only response to an acquisition by a new entrant that has a positive effect. Thus, our results suggest that the optimal response strategies depend on the source of the competitive pressure, and that an acquisitive response may not be the best response strategy.