Capacitated Assortment and Price Optimization under the Multinomial Logit Model

Operations Research Letters, 40 (6) 492 - 497

7 Pages Posted: 25 Mar 2012 Last revised: 1 Oct 2014

See all articles by Ruxian Wang

Ruxian Wang

Johns Hopkins University - Carey Business School

Date Written: December 29, 2013

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.

Keywords: multinomial logit model; assortment optimization; multi-product price optimization; efficient assortment

Suggested Citation

Wang, Ruxian, Capacitated Assortment and Price Optimization under the Multinomial Logit Model (December 29, 2013). Operations Research Letters, 40 (6) 492 - 497. Available at SSRN: https://ssrn.com/abstract=2028503 or http://dx.doi.org/10.2139/ssrn.2028503

Ruxian Wang (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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