Innovation is thought to come easily for companies in a high-tech cluster such as Silicon Valley, where firms in related businesses colocate. In a cluster, reasoned economist Alfred Marshall some 80 years ago, “the mysteries of the trade become no mysteries; but are, as it were, in the air, and children learn many of them unconsciously.” So, as theorists who continue Marshall's line of inquiry like to propound, technology is so pervasive in a cluster that surely clustered companies must have an easier time innovating than their competitors in the hinterlands, right?Maybe not, say the authors of a February 2002 working paper, who measured the relationship between clustering and innovation on U.S. software firms and found unexpected results. “I thought that firms would try to free-ride,” says co-author Brent Beal, assistant professor at Louisiana State University's E.J. Ourso College of Business Administration. It's thought that within clusters, there is a collective pool of knowledge that companies can tap by hiring from local firms or simply socializing with their brethren's employees.
