Cephalopod retinas typically carry one visual pigment, which rules out ordinary colour discrimination. The firefly squid is the documented exception: work on its retina identified three visual pigments with different spectral sensitivities, arranged in a banked retina, plus a photoreceptor structure unusual among cephalopods.
The ecological argument is that this squid lives where two light sources overlap. Downwelling daylight at depth is narrowly blue; bioluminescence from other animals, including the squid's own photophores, peaks at slightly different wavelengths. Separating them would help an animal distinguish a glowing organism from the background water.
The photophores themselves are well established. They are distributed over the mantle, arms and around the eyes, with especially large organs at the tips of the fourth arm pair. During the spring spawning run in Toyama Bay, huge numbers rise into shallow water and are stranded, and the fishery there operates before dawn. Whether the squid behaviourally discriminates colour, as opposed to merely possessing the pigments, has not been demonstrated.