Bavaria was still a kingdom at the time so they were free to alter the line of succession if and how they wanted to.
They might have introduced a system where the oldest line is King of Bavaria and the junior branch is King of Greece not unlike the system the Habsburgs had for the Imperial throne and the Duchy of Modena.
It all depends on the powerplay between Otto and his family and that of the later Ludwig III and his family. Whoever got the most support of the powers in the kingdom would have won a potential battle over the succession.
I think it would not have been unlikely that in the case of Otto having several sons he or (some of his) sons would have been re-incorperated in the Bavarian line of succession. Especially in the time it became clear that neither of his nephews would ever produce male offspring.
Do you know if Prince Otto of Bavaria (second son of King Ludwig I) renounced, for himself and all descendants, succession rights to the Bavarian throne, after assuming (in 1832) the Greek throne? This could potentially have caused a succession dispute in the House of Wittelsbach, since the dynastic line of the eldest son (who became King Maximilian II) eventually became extinct (both his sons died unmarried and without issue).
This meant that succession to the German kingdom eventually devolved upon his younger brothers and their male issue. The trouble is that whenever a genealogically senior line gets passed over in favor of junior lines, controversy oftentimes erupts. We have seen this in the French royal succession (House of Bourbon, where the Orléans and Legitimist factions are at odds with each other). In the House of Bourbon-Two Sicilies, Prince Carlos (second son of Prince Alfonso) renounced his succession rights after marrying a Spanish Infanta ...
As it was, the issue turned out to be moot in the Bavarian royal succession, since King Otto of Greece married Duchess Amalia of Oldenburg but eventually died childless (in 1867 when his nephew, Ludwig II, had been King of Bavaria for only three years, and had yet to be deposed. And his namesake nephew had not yet been clinically declared insane. As of then, nobody expected either brother to die without heirs).
Otherwise, if the royal couple had had male issue, those hypothetical heirs could have disputed the claims of Prince Luitpold (third son of King Ludwig I) and his male issue. After all, the House of Wittelsbach eventually got deposed in Greece. So, lacking a throne, they could have pressed a claim on the German throne. The ex-king might well have reneged upon his renunciation (if indeed he renounced his rights to Bavaria), had he lived ...
As it was, lacking direct heirs, Otto had only his younger brothers and their male issue as potential heirs to the Greek throne (although deposed, the House of Wittelsbach could theoretically have been reinstated in that country; look at the Karageorgeviches and Obrenovics of Serbia). But of course, they were also heirs to the Bavarian throne. As I understand, a renunciation did, in fact, occur: the future King Ludwig III, in marrying Archduchess Maria Theresia of Austria-Este (1868), was made to renounce (for himself and all his descendants) all claims to the Greek throne (from which his uncle had been deposed six years previously). The reason was religion: the bride's uncle (Duke Francesco V of Modena), a staunch Catholic, would not countenance his niece raising any prospective children in the Orthodox faith.
Since the legitimate male line descents of Ludwig III's younger brothers are extinct, the heir representing Otto of Greece today is Prince Leopold of Bavaria, a male-line descendant of King Ludwig I through his youngest son (Prince Adalbert, who established the Spanish branch of the House of Wittelsbach by marrying Infanta Amelia Philippina).
But in the end, I must go back to my original question regarding a renunciation of rights to the kingdom of Bavaria, and the implications for their descendants, should Otto and Amelia have managed to produce heirs ...
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