We can determine just how concentrated a market is so that we can determine if it is an oligopoly. As mentioned before the major characteristic of oligopoly is the interdependence of each firm. That is each firms pricing decisions are based on what they think their rivals will do. In essence the firms play a game where they set the price. This game can be shown using game theory.
Game theory sets up a matrix that shows all the possibilities of pricing that can exist.
For example if two firms then there is a low price strategy and a high price strategy of each firm. Now notice how each firms pricing decision will be based on what they think their rival will do. If you charge a low price and your rival charges a high price you will make a lot more profit than them because you are getting more customers. We see there is an incentive to cheat and collude. It is also interesting to note from our little matrix that if one firm lowers their price the other firm will also eventually lower their price because they do not want to be the high priced firm with the lower profit.