Opening Up the Black Box: Internal Resource Allocation and Investments in U.S. Electric Power

Abstract

The implications of internal resource allocation for competitive strategy have been overlooked in strategy research. Drawing on the financial synergies and the resource allocation process literatures, we develop and test hypotheses connecting a firm’s internal resource allocation with its competitive investment conduct. We use the U.S. electric power industry as an empirical setting, and find that firms with wider market scopes – a greater presence in other geographical generation markets – invest more strongly in a focal market in reaction to opportunities in that market. Above and beyond specific market opportunities, we also find that firm investments tend to co-move across markets and that this co- movement is reinforced by firm capability. In addition, we show the presence of important boundary conditions on firms’ internal resource allocation dynamics influencing the effects just described. Our post-hoc analysis reveals potentially important performance implications stemming from a firm’s competitiv...