Capacitated assortment and price optimization under the multilevel nested logit model

Abstract We study the capacitated assortment and price optimization problem under the multilevel nested logit model, where the retailer needs to determine the revenue-maximizing subset of products and their prices within a capacity limit. Customers’ purchase behavior is modeled using the multilevel nested logit model, which includes the multinomial logit and the two-level nested logit models as special cases. We formulate this problem as a non-linear mixed integer program and develop an efficient algorithm that finds its ϵ -approximate solution.

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