Article ID: | iaor20003344 |
Country: | United States |
Volume: | 45 |
Issue: | 11 |
Start Page Number: | 1496 |
End Page Number: | 1509 |
Publication Date: | Nov 1999 |
Journal: | Management Science |
Authors: | Ryzin Garrett van, Mahajan Siddharth |
Keywords: | inventory |
Consider a category of product variants distinguished by some attribute such as color or flavor. A retailer must construct an assortment for the category, i.e., select a subset of variants to stock and determine purchase quantities for each offered variant. We analyze this problem using a multinomial logit model to describe the consumer choice process and a newsboy model to represent the retailer's inventory cost. We show that the optimal assortment has a simple structure and provide insights on how various factors affect the optimal level of assortment variety. We also develop a formal definition of the level of fashion in a category using the theory of majorization and examine its implications for category profits.