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New Bounds For Assortment Optimization Under The Nested Logit Model
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Book Synopsis New Bounds for Assortment Optimization Under the Nested Logit Model by : Sumit Kunnumkal
Download or read book New Bounds for Assortment Optimization Under the Nested Logit Model written by Sumit Kunnumkal and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the assortment optimization problem under the nested logit model and obtain new bounds on the gap between the optimal expected revenue and an upper bound based on a certain continuous relaxation of the assortment problem. Our bounds can be tighter than the existing bounds in the literature and provide more insight into the key drivers of tractability for the assortment optimization problem under the nested logit model. Moreover, our bounds scale with the nest dissimilarity parameters and we recover the well-known tractability results for the assortment optimization problem under the multinomial logit model when all the nest dissimilarity parameters are equal to one. We extend our results to the cardinality constrained assortment problem where there are constraints that limit the number of products that can be offered within each nest.
Book Synopsis An Exact Method for Assortment Optimization Under the Nested Logit Model by : Laurent Alfandari
Download or read book An Exact Method for Assortment Optimization Under the Nested Logit Model written by Laurent Alfandari and published by . This book was released on 2020 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the problem of finding an optimal assortment of products maximizing the expected revenue, in which customer preferences are modeled using a Nested Logit choice model. This problem is known to be polynomially solvable in a specific case and NP-hard otherwise, with only approximation algorithms existing in the literature. For the NP-hard cases, we provide a general exact method that embeds a tailored Branch-and-Bound algorithm into a fractional programming framework. Contrary to the existing literature, in which assumptions are imposed on either the structure of nests or the combination and characteristics of products, no assumptions on the input data are imposed, and hence our approach can solve the most general problem setting. We show that the parameterized subproblem of the fractional programming scheme, which is a binary highly non-linear optimization problem, is decomposable by nests, which is a main advantage of the approach. To solve the subproblem for each nest, we propose a two-stage approach. In the first stage, we identify those products that are undoubtedly beneficial to offer, or not, which can significantly reduce the problem size. In the second stage, we design a tailored Branch-and-Bound algorithm with problem-specific upper bounds. Numerical results show that the approach is able to solve assortment instances with up to 5,000 products per nest. The most challenging instances for our approach are those in which the dissimilarity parameters of nests can be either less or greater than one.
Book Synopsis Bounds, Heuristics, and Prophet Inequalities for Assortment Optimization by : Guillermo Gallego
Download or read book Bounds, Heuristics, and Prophet Inequalities for Assortment Optimization written by Guillermo Gallego and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We address two important concerns faced by assortment managers, namely constrained assortment optimization and assortment personalization. We contribute to addressing these concerns by developing bounds and heuristics based on auxiliary multinomial logit (MNL) models. More precisely, we first provide easily computable upper and lower bounds for the unconstrained assortment optimization problem (TAOP) for every regular choice model and then extend the bounds to important versions of the constrained problem. We next provide an upper bound on the expected revenue of a clairvoyant firm that offers to each consumer the most profitable product that she is willing to buy. We then use the upper bound to assess the maximum benefits of personalization relative to a firm that does not personalize assortments. The standard prophet inequality is then used to show that the ratio is at most 2 for discrete choice models with { em independent} value gaps. For random utility models with dependent value gaps the ratio can be as large as the number of products. We find sufficient conditions to show that the prophet inequality holds for the $ alpha$-shaken multinomial logit ($ alpha$-MNL), a generalization of the MNL introduced here, that has the MNL and the generalized attraction model (GAM) as special cases. The prophet inequality also holds for the some versions of the Nested Logit model. For the latent-class MNL, the ratio is at most 1.5 when the coefficient of variation of the utilities goes to infinity. We show that consumers do not necessarily suffer under a clairvoyant firm and in fact their surplus may improve. On the other hand, when the clairvoyant firm has pricing power it can extract all of the consumers' surplus. We show that for the MNL model the clairvoyant can make up to $e$ times more than its non-clairvoyant counterpart.
Book Synopsis An exact method for assortment optimization under the nested logit model by : Laurent Alfandari
Download or read book An exact method for assortment optimization under the nested logit model written by Laurent Alfandari and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Capacitated Assortment Optimization by : Antoine Désir
Download or read book Capacitated Assortment Optimization written by Antoine Désir and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Assortment optimization is an important problem that arises in many practical applications such as retailing and online advertising. In this problem, the goal is to select a subset of items that maximizes the expected revenue in the presence of (1) the substitution behavior of consumers specified by a choice model, and (2) a potential capacity constraint bounding the total weight of items in the assortment. The latter is a natural constraint arising in many applications. We begin by showing how challenging these two aspects are from an optimization perspective. First, we show that adding a general capacity constraint makes the problem NP-hard even for the simplest choice model, namely the multinomial logit model. Second, we show that even the unconstrained assortment optimization for the mixture of multinomial logit model is hard to approximate within any reasonable factor when the number of mixtures is not constant.In view of these hardness results, we present near-optimal algorithms for the capacity constrained assort- ment optimization problem under a large class of parametric choice models including the mixture of multinomial logit, Markov chain, nested logit and d-level nested logit choice models. In fact, we develop near-optimal algorithms for a general class of capacity constrained optimization problems whose objective function depends on a small number of linear functions. For the mixture of multinomial logit model (resp. Markov chain model), the running time of our algorithm depends exponentially on the number of segments (resp. rank of the transition matrix). Therefore, we get efficient algorithms only for the case of constant number of segments (resp. constant rank). However, in light of our hardness result, any near-optimal algorithm will have a super polynomial dependence on the number of mixtures for the mixture of multinomial logit choice model.
Book Synopsis Approximation Schemes for Capacity-Constrained Assortment Optimization Under the Nested Logit Model by : Danny Segev
Download or read book Approximation Schemes for Capacity-Constrained Assortment Optimization Under the Nested Logit Model written by Danny Segev and published by . This book was released on 2020 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The main contribution of this paper resides in proposing a novel approximate dynamic programming approach for capacitated assortment optimization under the Nested Logit model in its utmost generality. Specifically, we show that the optimal revenue can be efficiently approached within any degree of accuracy through purely combinatorial techniques, synthesizing ideas related to continuous dynamic programming, state space discretization, and sensitivity analysis of modified revenue functions. These developments allow us to devise the first fully polynomial-time approximation scheme in this context, thus resolving fundamental open questions posed in previous papers.
Book Synopsis Branch-and-Bound Algorithms for Assortment Optimization Under Weakly Rational Choice by : Clark Pixton
Download or read book Branch-and-Bound Algorithms for Assortment Optimization Under Weakly Rational Choice written by Clark Pixton and published by . This book was released on 2016 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the static assortment optimization problem under weakly rational choice models, i.e. models in which adding a product to an assortment does not increase the probability of purchasing a product already in that assortment. This setting applies to most choice models studied and used in practice, such as the multinomial logit and random parameters logit models. We give a mixed-integer linear optimization formulation with an exponential number of constraints, and present two branch-and-bound algorithms for solving this optimization problem. The formulation and algorithms require only black-box access to purchase probabilities, and thus provide exact solution methods for a general class of discrete choice models, in particular those models without closed-form choice probabilities. We show that one of our algorithms is a PTAS for assortment optimization under weakly rational choice when the no-purchase probability is small, and give an approximation guarantee for the other algorithm which depends only on the prices of the products. Finally, we test the performance of our algorithms with heuristic stopping criteria, motivated by the fact that they discover the optimal solution very quickly.
Book Synopsis Assortment Optimization Under the Paired Combinatorial Logit Model by : Heng Zhang
Download or read book Assortment Optimization Under the Paired Combinatorial Logit Model written by Heng Zhang and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider uncapacitated and capacitated assortment problems under the paired combinatorial logit model, where the goal is to fi nd a set of products to maximize the expected revenue obtained from each customer. In the uncapacitated setting, we can offer any set of products, whereas in the capacitated setting, there is a limit on the number of products that we can offer. We establish that even the uncapacitated assortment problem is strongly NP-hard. To develop an approximation framework for our assortment problems, we transform the assortment problem into an equivalent problem of finding the fi xed point of a function, but computing the value of this function at any point requires solving a nonlinear integer program. Using a suitable linear programming relaxation of the nonlinear integer program and randomized rounding, we obtain a 0.6-approximation algorithm for the uncapacitated assortment problem. Using randomized rounding on a semidefi nite programming relaxation, we obtain an improved, but a more complicated, 0.79-approximation algorithm. Finally, using iterative variable fi xing and coupled randomized rounding, we obtain a 0.25-approximation algorithm for the capacitated assortment problem. Our computational experiments demonstrate that our approximation algorithms, on average, yield expected revenues that are within 3.6% of a tractable upper bound on the optimal expected revenues.
Book Synopsis The Elements of Joint Learning and Optimization in Operations Management by : Xi Chen
Download or read book The Elements of Joint Learning and Optimization in Operations Management written by Xi Chen and published by Springer Nature. This book was released on 2022-09-20 with total page 444 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book examines recent developments in Operations Management, and focuses on four major application areas: dynamic pricing, assortment optimization, supply chain and inventory management, and healthcare operations. Data-driven optimization in which real-time input of data is being used to simultaneously learn the (true) underlying model of a system and optimize its performance, is becoming increasingly important in the last few years, especially with the rise of Big Data.
Book Synopsis Assortment Optimization Under the Multinomial Logit Model with Utility-Based Rank Cutoffs by : Jacob Feldman
Download or read book Assortment Optimization Under the Multinomial Logit Model with Utility-Based Rank Cutoffs written by Jacob Feldman and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study assortment optimization problems under a natural variant of the multinomial logit model where the customers are willing to focus only on a certain number of products that provide the largest utilities. In particular, each customer has a rank cutoff, characterizing the number of products that she will focus on during the course of her choice process. Given that we offer a certain assortment of products, the choice process of a customer with rank cutoff k proceeds as follows. The customer associates random utilities with all of the products as well as the no-purchase option. She ignores all alternatives whose utilities are not within the k largest utilities. Among the remaining alternatives, the customer chooses the available alternative that provides the largest utility. Under the assumption that the~utilities follow Gumbel distributions with the same scale parameter, we provide a recursion to compute the choice probabilities. Considering the assortment optimization problem to find the revenue-maximizing assortment of products to offer, we show that the problem is NP-hard and give a polynomial-time approximation scheme. Since the customers ignore the products below their rank cutoffs in our variant of the multinomial logit model, intuitively speaking, our variant captures choosier choice behavior than the standard multinomial logit model. Accordingly, we show that the revenue-maximizing assortment under our variant includes the revenue-maximizing assortment under the standard multinomial logit model, so choosier behavior leads to larger assortments offered to maximize the expected revenue. We conduct computational experiments on both synthetic and real datasets to demonstrate that incorporating rank cutoffs can yield better predictions of customer choices and yield more profitable assortment recommendations.
Book Synopsis Multiproduct Price Optimization Under the Multilevel Nested Logit Model by : Hai Jiang
Download or read book Multiproduct Price Optimization Under the Multilevel Nested Logit Model written by Hai Jiang and published by . This book was released on 2014 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the multiproduct price optimization problem under the multilevel nested logit model, which includes the multinomial logit and the two-level nested logit models as special cases. When the price sensitivities are identical within each primary nest, that is, within each nest at level 1, we prove that the profit function is concave with respect to the market share variables. We proceed to show that the markup, defined as price minus cost, is constant across products within each primary nest, and that the adjusted markup, defined as price minus cost minus the reciprocal of the product between the scale parameter of the root nest and the price-sensitivity parameter of the primary nest, is constant across primary nests at optimality. This allows us to reduce this multidimensional pricing problem to an equivalent single-variable maximization problem involving a unimodal function. Based on these findings, we investigate the oligopolistic game and characterize the Nash equilibrium. We also develop a dimension reduction technique which can simplify price optimization problems with flexible price-sensitivity structures.
Book Synopsis Multi-Objective Assortment Optimization by : Zhen Chen
Download or read book Multi-Objective Assortment Optimization written by Zhen Chen and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Assortment optimization is a fundamental problem in revenue management, in which the objective usually is to select a subset of products to offer to customers in order to maximize expected revenue or profit. However, business practices often involve multiple, and potentially conflicting goals. In this work, we propose a general framework and a novel reformulation method for solving multi-objective assortment optimization problems. Specifically, we consider problems with a separable sum of multiple convex objective functions on linear combinations of choice probabilities, and we present a reformulation that effectively "linearizes" the problem. We prove that the reformulated problem is equivalent to the original problem and that it leads to a unified solution approach to multi-objective assortment optimization problems in various contexts. We show that the approach encompasses a wide range of operational objectives, such as risk, customer utility, market share, costs with economies of scale, and dualized convex constraints. We first illustrate our approach with the multinomial logit model without any constraints or with allowance for totally unimodular constraints. We further show that our framework leads to tractable solutions under the nested logit model and the Markov chain choice model. Together with large-scale numerical experiments to demonstrate the efficiency and practicality of our methods, we highlight that our work provides a powerful and flexible tool for solving multi-objective assortment problems, which arise frequently in practical revenue management settings.
Book Synopsis A Unified Analysis for Assortment Planning with Marginal Distributions by : Selin Ahipasaoglu
Download or read book A Unified Analysis for Assortment Planning with Marginal Distributions written by Selin Ahipasaoglu and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study assortment problems under the marginal distribution model (MDM), a semiparametric choice model that only requires marginal error information without assuming independence. It is known that the multinomial logit (MNL) model belongs to MDM. In this paper, we further show that some multi-purchase choice models, such as the multiple-discrete-choice (MDC) model, and threshold utility model (TUM), also fall into the framework of MDM, although MDM does not explicitly model multi-purchase behavior. For the assortment problem under MDM, we characterize a general condition for the marginal distributions under which a strictly profit-nested assortment is optimal. Moreover, though the problem is shown to be NP-hard, we prove that the best strictly profit-nested assortment is a 1/2-approximate solution for all MDMs. We further construct a simple case of MDM such that the 1/2-approximate bound is tight. These results either generalize or improve existing results on assortment optimization under MNL, MDC, and TUM.
Book Synopsis The Exponomial Choice Model by : Aydin Alptekinoglu
Download or read book The Exponomial Choice Model written by Aydin Alptekinoglu and published by . This book was released on 2015 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the use of a canonical version of a discrete choice model due to Daganzo (1979) in optimal pricing and assortment planning. In contrast to multinomial and nested logit (the prevailing choice models used for optimizing prices and assortments), this model assumes a negatively skewed distribution of consumer utilities, an assumption we motivate by conceptual arguments as well as published work. The choice probabilities in this model can be derived in closed-form as an exponomial (a linear function of exponential terms). The pricing and assortment planning insights we obtain from the Exponomial Choice (EC) model differ from the literature in two important ways. First, the EC model allows variable markups in optimal prices that increase with expected utilities. Second, when prices are exogenous, the optimal assortment may exhibit leapfrogging in prices, i.e., a product can be skipped in favor of a lower-priced one depending on the utility positions of neighboring products. These two plausible pricing and assortment patterns are ruled out by multinomial logit (and by nested logit within each nest). We provide structural results on optimal pricing for monopoly and oligopoly cases, and on the optimal assortments for both exogenous and endogenous prices. We also demonstrate how the EC model can be easily estimated--by establishing that the loglikelihood function is concave in model parameters and detailing an estimation example using real data.
Book Synopsis Constrained Assortment Optimization Under the Mixed Logit Model with Design Options by : Knut Haase
Download or read book Constrained Assortment Optimization Under the Mixed Logit Model with Design Options written by Knut Haase and published by . This book was released on 2020 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present the constrained assortment optimization problem under the mixed logit model (MXL) with design options and deterministic customer segments. The rationale is to select a subset of products of a given size and decide on the attributes of each product such that a function of market share is maximized. The customer demand is modeled by MXL. We develop a novel mixed-integer non-linear program and solve it by state-of-the-art generic solvers. To reduce variance in sample average approximation systematic numbers are applied instead of pseudo-random numbers. Our numerical results demonstrate that systematic numbers reduce computational effort by 70%. We solve instances up to 20 customer segments, 100 products each with 50 design options yielding 5,000 product-design combinations, and 500 random realizations in under two minutes. Our approach studies the impact of market position, willingness-to-pay, and bundling strategies on the optimal assortment.
Book Synopsis Capacitated Assortment and Price Optimization Under the Multinomial Logit Model by : Ruxian Wang
Download or read book Capacitated Assortment and Price Optimization Under the Multinomial Logit Model written by Ruxian Wang and published by . This book was released on 2014 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Multi-Product Price Optimization and Competition Under the Nested Logit Model with Product-Differentiated Price Sensitivities by : Guillermo Gallego
Download or read book Multi-Product Price Optimization and Competition Under the Nested Logit Model with Product-Differentiated Price Sensitivities written by Guillermo Gallego and published by . This book was released on 2014 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study firms that sell multiple substitutable products and customers whose purchase behavior follows a Nested Logit model, of which the Multinomial Logit model is a special case. Customers make purchasing decision sequentially under the Nested Logit model: they first select a nest of products and subsequently purchase one within the selected nest. We consider the multi-product pricing problem under the general Nested Logit model with product-differentiated price sensitivities and arbitrary nest coefficients. We show that the adjusted markup, defined as price minus cost minus the reciprocal of price sensitivity, is constant for all products within a nest at optimality. This reduces the problem's dimension to a single variable per nest. We also show that the adjusted nest-level markup is nest-invariant for all the nests, which further reduces the problem to maximizing a single-variable unimodal function under mild conditions. We also use this result to simplify the oligopolistic multi-product price competition and characterize the Nash equilibrium. We also consider more general attraction functions that include the linear utility and the multiplicative competitive interaction models as special cases, and show that similar techniques can be used to significantly simplify the corresponding pricing problems.
