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The Invisible Handshake: Tacit Collusion between Adaptive Market Agents

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Listed:
  • Luigi Foscari
  • Emanuele Guidotti
  • Nicol`o Cesa-Bianchi
  • Tatjana Chavdarova
  • Alfio Ferrara

Abstract

We study the emergence of tacit collusion between adaptive trading agents in a stochastic market with endogenous price formation. Using a two-player repeated game between a market maker and a market taker, we characterize feasible and collusive strategy profiles that raise prices beyond competitive levels. We show that, when agents follow simple learning algorithms (e.g., gradient ascent) to maximize their own wealth, the resulting dynamics converge to collusive strategy profiles, even in highly liquid markets with small trade sizes. By highlighting how simple learning strategies naturally lead to tacit collusion, our results offer new insights into the dynamics of AI-driven markets.

Suggested Citation

  • Luigi Foscari & Emanuele Guidotti & Nicol`o Cesa-Bianchi & Tatjana Chavdarova & Alfio Ferrara, 2025. "The Invisible Handshake: Tacit Collusion between Adaptive Market Agents," Papers 2510.15995, arXiv.org.
    • Handle: RePEc:arx:papers:2510.15995
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    References listed on IDEAS

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    7. Bence Toth & Yves Lemperiere & Cyril Deremble & Joachim de Lataillade & Julien Kockelkoren & Jean-Philippe Bouchaud, 2011. "Anomalous price impact and the critical nature of liquidity in financial markets," Papers 1105.1694, arXiv.org, revised Nov 2011.
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