Retail Assortment and Pricing Decisions Under a Deterministic Maximum Utility Consumer Choice Model

摘要

This paper considers a setting where a retailer seeks to optimize assortment and pricing decisions for a product line comprising substitutable products. The maximum utility (or envy-free pricing) model is adopted, whereby a customer chooses from the offered assortment a product that yields the highest positive utility (if any). A classical, and computationally intractable, mixed-integer nonlinear formulation of the problem in the literature is revisited. Specifically, a linear mixed-integer reformulation is developped, which effectively enables an exact solution to large-scale problem instances using commercial optimization solvers such as CPLEX or GUROBI. The usefulness of the proposed approach is demonstrated in a computational study. This paves the way for examining optimization models for more complex retail analytics problems that lie at the interface of operations management and the marketing literature.