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Date added: 12.1.2015

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With the development of the Internet and new technologies, network effects are recognized as a critical part of the industrial organization and play a fundamental role in expanding the economics of Information Technology industries. Network effectsMoreWith the development of the Internet and new technologies, network effects are recognized as a critical part of the industrial organization and play a fundamental role in expanding the economics of Information Technology industries. Network effects occur when the value or utility of a product or service to an individual varies depending on the number and possibly the set of other individuals who own the product or service.-Our focus is to understand the role of network effects and study the following questions in different settings: (1) What is the best way to take advantage of network effects to market a new product? We study the question in a viral marketing model with diffusion of information through a social network. We model the question as an optimization problem and show a strong inapproximability result. Our result continues to hold for a few special settings and answers a complexity question proposed in [54, 119]. (2) What is the best way to reach and evaluate social optimum? Motivated by applications in online dating and kidney exchange, we study a stochastic matching problem, where nodes represent agents in a matching market with dichotomous preferences, i.e., each agent finds every other agent either acceptable or unacceptable and is indifferent between all acceptable agents. The goal is to produce a matching between acceptable agents of maximum size. We give a simple greedy strategy for selecting probes which produces a matching whose cardinality is, in expectation, at least a quarter of the size of this optimal algorithms matching. We additionally show that variants of our algorithm can handle more complicated constraints, such as a limit on the maximum number of rounds, or the number of pairs probed in each round.-To evaluate social optimum in terms of competition among agents, we propose the notion of cheap labor cost in hiring a team markets to characterize how much better off a market can be for a consumer by removing a subset of agents. We present tight bounds on the cheap labor cost for a variety of markets including s-t path markets, matroid markets and perfect bipartite matching markets. (3) What is the best way to maximize the total revenue given the existence of network effects? We study the question in an envy-free pricing setting with metric substitutability among items. While the general envy-free pricing problem is hard to approximate, the addition of metric substitutability constraints allows us to solve the problem exactly in polynomial time by reducing it to an instance of weighted independent set on a perfect graph. When the substitution costs do not form a metric, even in cases when a (1 + epsilon)-approximate triangle inequality holds, the problem becomes NP-hard. Our results show that the triangle inequality is the exact sharp threshold for the problem of going from tractable to hard. Network effects in algorithmic game theory. by Ning Chen