Emergence of electricity utilities: agglomeration externalities and industry dynamics

Prior studies highlight a trade-off between Marshallian and Jacobean agglomeration externalities in fostering new firms, yet their interaction and evolution alongside industry dynamics are less understood. This study examines the emergence of green electricity utilities in 962 regions across 14 European countries (1985-2023). Findings show that both externalities independently had a positive impact on firm entry in the early stages, though their influence declined over time. Notably, the interaction between Marshallian and Jacobean externalities negatively impacted firm entry during early liberalization likely due to a lack of strategic focus and institutional support in highly diversified regions. Despite the diminishing effect, a concentrated specialization strategy continues to offer competitive advantages during the sustainability transition. The study also highlights the importance of public legitimacy for environmental policies in reinforcing green sector regimes. Finally, the observed negative effect of relatedness challenges the relevance of the Smart Specialization framework for this sector.