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Tractable consideration set structures for assortment optimization and network revenue management
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Strauss, Arne and Talluri, Kalyan (2017) Tractable consideration set structures for assortment optimization and network revenue management. Production and Operations Management, 26 (7). pp. 1359-1368. doi:10.1111/poms.12685 ISSN 1059-1478.
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Official URL: http://doi.org/10.1111/poms.12685
Abstract
Discrete-choice models are widely used to model consumer purchase behavior in assortment optimization and revenue management. In many applications, each customer segment is associated with a consideration set that represents the set of products that customers in this segment consider for purchase. The firm has to make a decision on what assortment to offer at each point in time without the ability to identify the customer’s segment. A linear program called the Choice-based Deterministic Linear Program (CDLP) has been proposed to determine these offer sets. Unfortunately, its size grows exponentially in the number of products and it is NP-hard to solve when the consideration sets of the segments overlap. The Segment-based Deterministic Concave Program with some additional consistency equalities (SDCP+) is an approximation of CDLP that provides an upper bound on CDLP’s optimal objective value. SDCP+ can be solved in a fraction of the time required to solve CDLP and often achieves the same optimal objective value. This raises the question under what conditions can one guarantee equivalence of CDLP and SDCP+. In this paper, we obtain a structural result to this end, namely that if the segment consideration sets overlap with a certain tree structure or if they are fully nested, CDLP can be equivalently replaced with SDCP+. We give a number of examples from the literature where this tree structure arises naturally in modeling customer behavior.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HF Commerce | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Consumer behavior -- Mathematical models, Revenue management | ||||||||
Journal or Publication Title: | Production and Operations Management | ||||||||
Publisher: | Wiley-Blackwell Publishing Ltd. | ||||||||
ISSN: | 1059-1478 | ||||||||
Official Date: | July 2017 | ||||||||
Dates: |
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Volume: | 26 | ||||||||
Number: | 7 | ||||||||
Page Range: | pp. 1359-1368 | ||||||||
DOI: | 10.1111/poms.12685 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 5 December 2016 | ||||||||
Date of first compliant Open Access: | 10 January 2018 | ||||||||
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