[SalesForce] Look Up relation Vs Master detail relation

If its a lookup you will need a simple trigger to do this in real time

trigger onParentObjectDelete on CustomObject__c (before delete){
List<Id> idsToQuery = new List<Id>{};
for(CustomObject__c a: Trigger.old){
    idsToQuery.add(a.id);
 }

//query all child records where parent ids were deleted
ChildObject__c[] objsToDelete = [select id from ChildObject__c where ParentId__c IN :idsToQuery];

delete objsToDelete; //perform delete statement
}

This is if you are planning to do a real time delete .Also in this case be sure to check with business what if someone undeletes a record from the bin.May be a trigger to handle this as well

Also if you don't need a real time delete ,a batch process to fetch orphaned childs(ParentId is null) and delete .

I can't offer you any insight into why you cannot do this, you just can't unfortunately, it's a seemingly arbitrary limitation of the platform and the Product2 object. Unless someone who knows about the internals of the platform comes across this I doubt you'll ever get a definitive answer.

In terms of working around it though, the only way to achieve this is to create your lookup as a standard non-required Lookup and then enforce that the value of this lookup cannot be blank using a validation rule.

Your validation rule will look something like this:

ISBLANK(ProductId__c)

If the Product is deleted then this will result in the value of the field being cleared, as per the default 'Clear the value of this field.' behaviour, which will prevent you updating the child record until a valid lookup ID is entered.

If you want to change this behaviour you'll have to write a before delete trigger on Product2 with your desired logic.