Assortment optimisation under a general discrete choice model: a tight analysis of revenue-ordered assortments

DOI10.1007/S00453-019-00610-8MaRDI QIDQ2300720zbMATH OpenOpenAlexFDO

Authors Gerardo Berbeglia, Gwenaël Joret

Publication date 28 February 2020

Published in Algorithmica (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1606.01371

zbMATH Keywords

Stackelberg gamesassortment problemenvy-free pricing

Mathematics Subject Classification ID

Hierarchical games (including Stackelberg games) (91A65) Microeconomic theory (price theory and economic markets) (91B24)

Abstract: The assortment problem in revenue management is the problem of deciding which subset of products to offer to consumers in order to maximise revenue. A simple and natural strategy is to select the best assortment out of all those that are constructed by fixing a threshold revenue $pi$ and then choosing all products with revenue at least $pi$. This is known as the revenue-ordered assortments strategy. In this paper we study the approximation guarantees provided by revenue-ordered assortments when customers are rational in the following sense: the probability of selecting a specific product from the set being offered cannot increase if the set is enlarged. This rationality assumption, known as regularity, is satisfied by almost all discrete choice models considered in the revenue management and choice theory literature, and in particular by random utility models. The bounds we obtain are tight and improve on recent results in that direction, such as for the Mixed Multinomial Logit model by Rusmevichientong et al. (2014). An appealing feature of our analysis is its simplicity, as it relies only on the regularity condition. We also draw a connection between assortment optimisation and two pricing problems called unit demand envy-free pricing and Stackelberg minimum spanning tree: These problems can be restated as assortment problems under discrete choice models satisfying the regularity condition, and moreover revenue-ordered assortments correspond then to the well-studied uniform pricing heuristic. When specialised to that setting, the general bounds we establish for revenue-ordered assortments match and unify the best known results on uniform pricing.

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Cited in

(10)

• Fractional 0-1 programming and submodularity
• The approximability of assortment optimization under ranking preferences
• Assortment optimization under the sequential multinomial logit model
• On the tightness of an LP relaxation for rational optimization and its applications
• Data‐driven research in retail operations—A review
• Revenue maximization in Stackelberg pricing games: beyond the combinatorial setting
• Assortment optimization using an attraction model in an omnichannel environment
• Assortment optimization under a multinomial logit model with position bias and social influence
• Online assortment and market segmentation under Bertrand competition with set-dependent revenues
• In-out algorithm for assortment planning under a ranking-based consumer choice model

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