Capacitated assortment and price optimization under the multinomial logit model

• Published in: Operations research letters Vol. 40; no. 6; pp. 492 - 497
• Main Author: Wang, Ruxian
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier B.V 01.11.2012; Elsevier
• Subjects: Algorithms; Applied sciences; Assortment optimization; Decision theory. Utility theory; Efficient assortment; Exact sciences and technology; Inventory control, production control. Distribution; Logit models; Mathematical models; Multi-product price optimization; Multinomial logit model; Operational research and scientific management; Operational research. Management science; Operations research; Optimization; Utilities; Assortment optimization; Multi-product price optimization; Multinomial logit model; Efficient assortment; Process planning; Retail marketing; Utility function; Multiple production; Optimization; Logistic regression; Consumer behavior; Assortment; Product structure; Fixed point theorem; Capacity constraint; Purchases; Logit model
• ISSN: 0167-6377; 1872-7468
• DOI: 10.1016/j.orl.2012.08.003

We consider an assortment and price optimization problem where a retailer chooses an assortment of competing products and determines their prices to maximize the total expected profit subject to a capacity constraint. Customers’ purchase behavior follows the multinomial logit choice model with general utility functions. This paper simplifies it to a problem of finding a unique fixed point of a single-dimensional function and visualizes the assortment optimization process. An efficient algorithm to find the optimal assortment and prices is provided.