Pseudonyms
At least in my state you can use any name you want, so long as you don't have fraudulent intent.
Now ... usually, you put the pseudonym you want to use in the byline, with your real name in the address block.
If you're trying to keep the whole thing secret from the publishers, have your agent submit the story under your pseudonym (that's how "Christopher Pike," the YA Horror novelist, did it).
Don't imagine that when you submit your novel, that's the last you'll be talking to the editor until you see it in the bookstores. You'll have lots of opportunities to discuss what name you want on the cover.
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Now about the Death Spiral. This comes from some chain bookstores' practice of Ordering To Net.
Say we have a happy young author named Anthony Aardvark. He's written a swell little mystery called Up Your Nose With a Rubber Hose, it's being published, and all's well.
The big chains see a new author. They don't know how he'll do, maybe he'll be the next John Grisham? Who knows? They order 10,000 copies for their various stores. (The books are returnable, so it doesn't hurt them to do it.)
Publishers often set printings based on pre-orders. 10,000 copies get printed, plus a few extra to take care of the indies and such.
Up Your Nose With a Rubber Hose comes out, and gets an 80% sell-through (which is pretty good).
(Sell-through is the number sold divided by the number shelved, times 100%.)
That is to say, 10,000 were shelved, 8,000 were sold. (The rest were returned for credit.)
Now Mr. Aardvark submits his next novel, In Your Eye With A Lemon Pie. The last one sold pretty well, he's gotten a slightly higher advance, all's seemingly well ... but the chains are Ordering To Net. 8,000 sold last time, so they only order 8,000 this time. That's where the printing is set.
Again, Mr. Aardvark gets an 80% sell-through; 6,400 are sold.
He submits his third book, Down Your Throat With A Motorboat. The chains are still Ordering To Net, so they only order 6,400. (Notice that there aren't enough copies to go on the shelves in all the bookstores where Rubber Hose was shelved -- readers there who liked the first book and would buy the next book by that author don't find it, don't buy it, and pick up some other book instead.) The publisher only prints, perhaps, 7,000. Out they go, there's an 80% sell-through (still a good sell-through number), and 5,120 are sold.
Mr. Aardvark submits In Your Hand With A Rubber Band. The chains will only preorder 5,120 -- it isn't worth the publisher's time to print so few -- so Mr. Aardvark is released from his contract. The good news is that he keeps the advance. The bad news is that any time his name pops up, the computers at the chain store say "order 5,120 copies."
What can he do? He changes his name to Basil Basingstoke, and submits In Your Hand With A Rubber Band under a new title with his new name. He only gets a first-novel sized advance, but! The chains, seeing a New Author, figure that this guy could be the Next John Grisham, and preorder 10,000 copies of The Rubber Band Affair by Basil Basingstoke.
(Perhaps some of Mr. Aardvark's fans will complain on Usenet that Basil Basingstoke is just a cheap Aardvark ripoff. Perhaps not.)
So that's one of the Horrid Things that can happen to authors.