The Invisible Handshake: Tacit Collusion between Adaptive Market Agents

Luigi Foscari, Emanuele Guidotti, Nicol\`o Cesa-Bianchi, Tatjana Chavdarova and Alfio Ferrara

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Abstract: We study the emergence of tacit collusion in a repeated game between a market maker, who controls market liquidity, and a market taker, who chooses trade quantities. The market price evolves according to the endogenous price impact of trades and exogenous innovations to economic fundamentals. We define collusion as persistent overpricing over economic fundamentals and characterize the set of feasible and collusive strategy profiles. Our main result shows that a broad class of simple learning dynamics, including gradient ascent updates, converges in finite time to collusive strategies when the agents maximize individual wealth, defined as the value of their portfolio, without any explicit coordination. The key economic mechanism is that when aggregate supply in the market is positive, overpricing raises the market capitalization and thus the total wealth of market participants, inducing a cooperative component in otherwise non-cooperative learning objectives. These results identify an inherent structure through which decentralized learning by AI-driven agents can autonomously generate persistent overpricing in financial markets.

Date: 2025-10, Revised 2026-02
New Economics Papers: this item is included in nep-com, nep-gth, nep-mst and nep-reg
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