Delegation in multiproduct downstream firms with heterogeneous channels

Incorporating an exclusive dealing extension into Cournot competition, we analyze the multiproduct downstream firms’ choice of organizational form between the unitary form (U-form) for corporate incentive and the multidivisional form (M-form) for divisional incentive. The U-form in the managerial delegation for downstream firms is a dominant strategy under partial and binding exclusive dealings, while the M-form for downstream firms is a dominant strategy under non-binding exclusive dealing. If the degree of interbrand competition is sufficiently large when comparing the two forms in equilibrium, social welfare and consumer surplus within the U-form under partial exclusive dealing are greater than those within the M-form under non-binding exclusive dealing, and vice versa. When decentralized bargaining is allowed, (i) strategic delegation is redundant and (ii) regardless of the channel structure, one downstream firm chooses the M-form and the other the U-form, except for a small intermediate substitutability range.