Equilibria and Learning in Competitive Market Making

Matteo Onger and Luigi Foscari

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Abstract: We propose a market-making game played among $N \ge 2$ strategic market makers and a single non-strategic representative trader. In a continuous quote space, standard finite-game arguments do not apply, while non-convex and discontinuous payoffs rule out classical continuous existence results and complicate learning. Nonetheless, we characterize pure-strategy Nash equilibria (PSNEs) and show that at least one PSNE always exists under minimal assumptions on the underlying asset value distribution, and that the equilibrium bid-ask spread widens strictly with asset value volatility. To obtain a tractable learning framework, we discretize prices and, under an additional regularity condition, show that the time-averaged play of no-internal-regret learners approaches the continuous Nash price envelope as the tick size vanishes. Finally, we empirically validate our theoretical results through numerical simulations.

Date: 2026-10
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