Delegation in Multiproduct Downstream Firms with Heterogeneous Channels

Incorporating the extension of exclusive dealing into Cournot competition, we analyze the multiproduct downstream firms' choice of organizational form between U-form and M-form. With managerial delegation in downstream firms, we find that choosing U-form for the downstream firms is a dominant strategy under partial exclusive dealing, while M-form is a dominant strategy under exclusive dealing. If the degree of interbrand competition is sufficiently large when comparing U-form and M-form in equilibrium, social welfare and consumer surplus with U-form under partial exclusive dealing are greater than those with M-form under exclusive dealing, and vice versa. Furthermore, when decentralized bargaining is allowed, we find that (i) the strategic delegation is redundant and (ii) regardless of channel structure, one downstream firm chooses M-form and the other downstream firm chooses U-form except for small intermediate range of substitutability.enter