Welfare Maximization with Friends-of-Friends Network Externalities

Online social networks allow the collection of large amounts of data about the influence between users connected by a friendship-like relationship. When distributing items among agents forming a social network, this information allows us to exploit network externalities that each agent receives from his neighbors that get the same item. In this paper we consider Friends-of-Friends (2-hop) network externalities, i.e., externalities that not only depend on the neighbors that get the same item but also on neighbors of neighbors. For these externalities we study a setting where multiple different items are assigned to unit-demand agents. Specifically, we study the problem of welfare maximization under different types of externality functions. Let n be the number of agents and m be the number of items. Our contributions are the following: (1) We show that welfare maximization is APX-hard; we show that even for step functions with 2-hop (and also with 1-hop) externalities it is NP-hard to approximate social welfare better than (1−1/ e ). (2) On the positive side we present (i) an O(√(n)) -approximation algorithm for general concave externality functions, (ii) an O (log m )-approximation algorithm for linear externality functions, and (iii) a 5/18(1-1/e) -approximation algorithm for 2-hop step function externalities. We also improve the result from [ 7 ] for 1-hop step function externalities by giving a 1/2(1-1/e) -approximation algorithm.