Optimal content development and provision strategies for an integrated firm with divisional conflicts

This study analyzes the optimal content development and delivery strategies for an integrated firm facing downstream competition while considering inter-departmental conflicts. The integrated firm developing the new content consists of content creation and distribution divisions and determines whether to supply its newly developed content to the downstream competitor. Two organizational structures are considered: centralized and decentralized. Under the centralized structure, decisions are made to maximize the overall profit. Under the decentralized structure, the content creation and distribution divisions make decisions independently to maximize their own profits. Our results show that the centralized integrated firm always withholds its new content from its competitor, whereas the content is supplied to the competitor when it is costly to invest in the new content. Owing to the nonexclusive provision induced by divisional conflicts, the decentralized structure may result in higher-quality new content. Moreover, the decentralized structure always hurts the integrated firm, but it also hurts the downstream competitor when the content creation cost coefficient is high. As the sum of the profits of the integrated firm and downstream competitors, the industry profits are worse off under the decentralized structure. Additionally, divisional conflicts may improve consumer surplus and social welfare.