I'm confident that Mozilla will follow suite sooner or later to make it easier for extension developers to make extensions for both browsers. Mozilla did that when manifest v1 came along, removed a bunch of functionality from Jetpack, and aligned with Google.
I can only guess that there is a monetary incentive. They get 400 million a year from Google. Why would you compete if you get that kind of money for being the underdog?
you're definitely right and it's obvious that Mozilla can't make Firefox as private as they advertise it because of their monetary interests (thus google is default, there are paid promotions in the home page, a lot of privacy features aren't enabled by default).
But at least they make a decent work implementing them and because it's free software then other projects like Tor or Librewolf can enable all the privacy features, remove the trackers and release a damn good browser.
It would stand to reason that if they were as bad as Chrome, that people would just stick with Chrome and they would miss out on profit entirely, I would think. If monetary incentive is a reason, purposely hamstringing themselves seems counter-intuitive toward that goal.
The thing is, firefox is the only other browser out there that doesn't use the same browser engine. They know it too. They have absolutely no incentive to change, unless some other browser engine and a corresponding browser were to pop up that competed with them. If a group decided "we're going to make a browser that is really private and doesn't do what Mozilla does", and they got a footing, only then would Mozilla consider competing, but only to be better than that other browser, not Chrome.
For Mozilla to want to be better than Chrome, Google would have to do some incredibly dumb shit, Mozilla would need an enormous cash injection from another party, or the current stewards of Mozilla would need to be replaced with people who actually care. IMO, those are all unlikely.
In this specific context we are talking about Manifest V3 artificially limiting the number of rules in an extension. That's it, it's artificial, there is no reason for it to exist other than Google purposely degrading the capability. What does Mozilla have to gain by also degrading themselves?
Compatibility. You want to have enough users to be considered for being paid off, but not too little that you can be ignored. It's similar to the linux gaming move: on linux you can't just add a windows compatible interface to the kernel, so you have to translate it. Game developers thus focus on windows and ignore linux since there build process is completely different. As a browser, you sure as hell can introduce a common interface --> extension devs write their extension once and it run on firefox too. Users who care enough can thus switch without much hassle.
It will still be compatible, Firefox just doesn't need to add a limiter, meaning the same extension will run better on Firefox than Chrome in the end. That's how I see this all unfolding at least. (I'm a javascript developer, I audit all the extension code I run generally, my perspective is purely technical and not political on the matter.)