Abstract: We extend the industry evolution literature by explicitly considering connections between vertically related industries. Specifically, we explore whether a downstream firm’s exit rate is affected by prevalence of upstream suppliers. We further explore whether different governance forms in the upstream industry–vertically integrated suppliers vs. those that sell on the market–affect a downstream firm’s exit rate differently. Finally, we revisit the traditional population density-exit rate relationship while explicitly controlling for upstream industry characteristics to explore whether the conventional interpretation of density survives our expansion of the theoretical lens. We test our predictions in a study of the laser printer and laser engine industries. These industries are characterized by a variety of governance forms: fully-integrated, partially-integrated, and non-integrated firms. We find that the exit rate of printer firms declines as the number of non-integrated or partially-integrated engine firms increases; the number of fully-integrated firms has no effect on printer firm exit rates. Further, in models that include data on upstream suppliers, the traditional U-shaped effect of printer firm density on printer firm exit rates is replaced by a purely competitive effect. We speculate how the pervasive U-shaped effect of population density–and its widely held “legitimation and competition” interpretation–might be an artifact of industry scope in prior studies.

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