I have inherited an SQL Server 2014 which has been setup with 2 instances of SQL Server. Each instance hosts a number of databases and each instance has been setup to use all the CPU (4 processors) and RAM (32 GB).
How does SQL Server manage this situation? Should I expect a drop in performance because both instances are competing with each other?
There's pretty much no point in doing that and here's why: both instances will fight for RAM. Solution: have one instance of SQL Server managing all of your DBs.
This is not an ideal configuration. SQL uses a lot of tricks under the covers to be able to perform as well as possible and some of those don't work (or have negative consequences) if you're running more than one SQL instance you may want to consider consolidating them to a single instance.
Having a single process that is able to manage cache, disk access and threading will probably give you a boost. It almost certainly won't hurt.
