Three essays on vertical pricing, firm dynamics and industry evolution

Essays in this dissertation study firms' behavior in different market contexts and how firm behavior at the individual level may lead to systemic patterns at the industry level.; In the first essay, it is shown that whether or not the strategic effect of raising downstream market prices can be strengthened through a longer vertical chain depends on the type of contracts signed between upstream and downstream layers. In particular, under a two-part tariff contract that gives the upstream layer perfect control over the downstream layer's profit, a longer vertical chain does not extend the strategic effect beyond two layers. This observation is generalized into a theory of chain reaction.; The second essay studies the Gibrat's Law and the firm size distribution in an industry. Based on Jovanovic's selection model, I propose a model that generates the negative relationship between firm growth rate and size for young age cohorts of firms, and Gibrat's Law and the lognormal distribution of firm sizes for old age cohorts. The model reconciles the different empirical results obtained in earlier studies. The model's implications are verified using data on growth and survival patterns over time in cohorts of franchisors.; The third essay looks at how a firm's entry decision and the subsequent survival is affected by demand conditions upon entry. Using data on franchising firms, I find that entry rates are correlated with macroeconomic conditions at the time of entry. I also find that the same conditions at the time of entry into franchising tend to affect positively the franchisor's short-term survival but negatively their survival for the longer term. The negative effect supports the selection theory, namely, more firms for whom franchising is not a good long-term strategy tend to enter franchising in good times relative to bad.