Coordination Failures and Stackelberg Leadership in Housing Development with Network Effects
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arXiv
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| Format: | Preprint |
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2026
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| _version_ | 1866911677061005312 |
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| author | Rangan, Vaibhav |
| author_facet | Rangan, Vaibhav |
| contents | I study coordination failures in housing development markets with network effects, where the value of building depends on aggregate supply. When network effects are sufficiently strong and convex, multiple equilibria arise: a low-supply coordination failure and a high-supply outcome. Without a coordination mechanism, equilibrium is indeterminate. I introduce a large developer who moves first in a Stackelberg game, committing to housing supply before atomistic developers make entry decisions. The main result is that the large developer always commits at least to the high-supply equilibrium, eliminating the coordination failure by pushing past the unstable threshold that separates the low and high outcomes. The result is unconditional; it holds for general demand functions and cost distributions, and does not depend on which stable continuation equilibrium materializes. The leader's commitment inverts standard monopoly intuition: first-mover commitment can improve welfare by resolving a coordination problem that atomistic markets cannot solve on their own. I also characterize when the developer builds beyond the high equilibrium into a monopoly region, and show that the market underprovides housing relative to the social optimum. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2605_12559 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Coordination Failures and Stackelberg Leadership in Housing Development with Network Effects Rangan, Vaibhav Theoretical Economics I study coordination failures in housing development markets with network effects, where the value of building depends on aggregate supply. When network effects are sufficiently strong and convex, multiple equilibria arise: a low-supply coordination failure and a high-supply outcome. Without a coordination mechanism, equilibrium is indeterminate. I introduce a large developer who moves first in a Stackelberg game, committing to housing supply before atomistic developers make entry decisions. The main result is that the large developer always commits at least to the high-supply equilibrium, eliminating the coordination failure by pushing past the unstable threshold that separates the low and high outcomes. The result is unconditional; it holds for general demand functions and cost distributions, and does not depend on which stable continuation equilibrium materializes. The leader's commitment inverts standard monopoly intuition: first-mover commitment can improve welfare by resolving a coordination problem that atomistic markets cannot solve on their own. I also characterize when the developer builds beyond the high equilibrium into a monopoly region, and show that the market underprovides housing relative to the social optimum. |
| title | Coordination Failures and Stackelberg Leadership in Housing Development with Network Effects |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2605.12559 |