Do firms base their decision-making on the expectations of what their competitors might do? If so, then these firms are mutually interdependent, another assumption in the oligopolistic model.
Unlike all the other market structures studied up to this point (perfect competition, monopoly, etc.) there are several models of firm behavior in oligopoly in which the appropriate model *depends* on the amount of mutual interdependence.
For example, consider a line measuring "no interdependence" to "considerable interdependence" in an industry. If firms act independently of each other, then the potential models of oligopoly would be either 1) a profit-maximization model where MR = MC, or 2) a revenue-maximization model where MR = 0.
If firms make decisions completely interdependently, then the potential models would be 1) a price leadership model of tacit collusion, or 2) a cartel model of express or explicit collusion.
If the interdependence is somewhere in the middle, then the potential models would be 1) the kinked demand curve, 2) game theory, 3) contestable market theory, or 4) Nash Equilibrium (named after the main character of the movie "A Beautiful Mind" --- John Nash).
Note: Christian --- It's difficult to know right now what your professor's going to focus on, so I won't elaborate yet on any of these models. Hopefully though, he'll talk about game theory and the kinked demand curve, and leave the other models for another semester of microeconomic theory. Love you, mom
