Not Invented Here? Innovation in 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 build upon the same prior inventions year after year. However, smaller 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. In addition, we find no evidence that inventions from company town firms, large or small, have any less impact. However, inventions by large firms in company towns do seem to have a narrower impact in terms of geographic scope. Furthermore these firms appropriate a disproportionately large fraction of their impact themselves. JEL classification: O18, O33, R11