This study applies a vertical differentiation model to the issues of marketing channel. It discusses how channel power and channel structure affect the optimal behavior of up- and down-stream firms in the high- and low-quality markets. Channel power can be classified as Nash Bargaining (NB), Manufacturer Stackelberg (MS), Retailer Stackelberg (RS), and Vertical Nash (VN), while channel structure can be classified as common dealing (2M1R) and exclusive dealing (2M2R).Under different channel power, the sequences of firm's profits are indeterminate, which depends on the substitutability of goods. Under different channel structure, retailers prefer the common dealing while manufacturers prefer the exclusive dealing system.