Capacitated assortment and price optimization under the multinomial logit model

Capacitated assortment and price optimization under the multinomial logit model

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Article ID: iaor20127742
Volume: 40
Issue: 6
Start Page Number: 492
End Page Number: 497
Publication Date: Nov 2012
Journal: Operations Research Letters
Authors:
Keywords: retailing, simulation
Abstract:

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.

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