This paper analyzes how economic deregulation impacts resource reconfiguration in the electric utility industry. We argue that to understand strategic change in this industry, we need to understand how development and deployment of a firm's resources reflects path dependencies that nonmarket actors impose on firms. We find evidence that the deregulation introduced to this historically staid industry has stimulated environmental differentiation strategies for incumbent firms. Consistent with theories that suggest differentiation is most likely to appear where its point of uniqueness is valued by customers, utilities engaged in differentiation if they served states whose populace exhibited a higher level of environmental sensitivity. The tendency for firms to differentiate is lessened if they are relatively more dependent on coal-fired generation or relatively more efficient. In both of these cases, the variables are associated with lower operating costs, in turn demonstrating that firms sort themselves into either differentiation or low cost strategies as their environments reflect more market-like segmentation in a deregulated world. This paper contributes to the resource based view of the firm by highlighting the importance of the nonmarket context in which resources are developed and leveraged.
