The Gunners have already done business with the Seagulls this month, signing Leandro Trossard.
They have also acquired the services of Jakub Kiwior from Spezia, but with just two days left in the winter transfer window, the Premier League leaders are still searching for a new attacker.
Arsenal have identified Caicedo as one of their prime targets, and Mikel Arteta’s side have already had an initial £60m bid rejected by Brighton.
According to Sky Sports News, the North Londoners have tested Brighton’s resolve and made an improved bid worth £70m, including add-ons.
Meanwhile, the Ecuadorian has also been linked with a move to Chelsea and Liverpool this month.
Caicedo has started 18 of the club’s 19 top flight appearances this season.