Price and non-price competition in an oligopoly: an analysis of relative payoff maximizers

Do firms that engage in relative payoff maximizing (RPM) behavior always choose a strategy profile that results in tougher competition compared to firms that engage in absolute payoff maximizing (APM) behavior? We address this question by way of a simple model of symmetric oligopoly where firms simultaneously select a two-dimensional strategy set consisting of a price variable and a non-price (i.e., quality) variable. Our results show that equilibrium solutions of RPM and APM are distinct. It is further shown that the standard result of Nash equilibrium in oligopoly, namely, that the non-price variable is used to soften price competition, survives also when firms are concerned with relative payoff considerations.