Abstract

The article shows that strategic quantity competition can be characterized by behavioral heterogeneity, once competing firms are allowed in a pre-market stage to optimally choose the behavioral rule they will follow in their strategic choice of quantities. In particular, partitions of the population of identical firms in which some of them are profit maximizers while others follow an alternative criterion, turn out to be deviation-proof equilibria both in simultaneous and sequential game structures. Our findings that in a strategic framework heterogeneous behavioral rules may be consistent with individual incentives is a first attempt to provide a game-theoretic microfoundation of heterogeneity.