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Joint Optimization of Assortment Selection and Pricing under the Capacitated Multinomial Logit Choice Model with Product-Differentiated Price Sensitivities

Wang, Ruxian
HP Laboratories


Keyword(s): Multinomial Logit model; assortment optimization; multi-product price optimization

Abstract: Many firms face a problem to select an assortment of products and determine their prices to maximize the total profit subject to a capacity constraint. Customers' purchase behavior follows the Multinomial Logit choice model. Our analysis shows the capacity is always fully used and the nested structure is lost when price sensitivities are product-differentiated. We propose a nonrecursive polynomial-time algorithm for the joint assortment and multi-product price optimization.

11 Pages

External Posting Date: September 21, 2012 [Fulltext]. Approved for External Publication
Internal Posting Date: September 21, 2012 [Fulltext]

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