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Delegation in multiproduct downstream firms with heterogeneous channels

Kangsik Choi ()
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Kangsik Choi: Pusan National University

Journal of Economics, 2022, vol. 135, issue 1, No 3, 75-102

Abstract: Abstract 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.

Keywords: Heterogeneous channel; M-form; U-form; Managerial incentives; Bargaining (search for similar items in EconPapers)
JEL-codes: L10 L13 L22 L25 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00712-021-00752-w

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