Not Invented Here: Creative Myopia and Company Towns

We examine variation in the concentration of inventive activity across 72 of North America’s most highly innovative locations. In 12 of these areas, innovation is particularly concentrated in a single large firm; we refer to such locations as “company towns.” We find that inventors employed by large firms in these locations tend to draw disproportionately from their firm’s own prior inventions (as measured by citations to their own prior patents) relative to what would be expected given the underlying distribution of innovative activity across all inventing firms in a particular technology field. Furthermore, we find such inventors are more likely to draw upon the same prior inventions year after year. We refer to this tendency as “creative myopia.” However, smaller entrepreneurial firms in company towns do not exhibit this myopic behavior: they draw upon prior inventions as broadly as their small-firm counterparts in more diverse locations. Moreover, we find no evidence that inventions from company town firms have any less impact, although a greater fraction of the impact from large-firm company town inventions is realized by the inventing firm itself. JEL classification: O18, O33, R11