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Exact First-Choice Product Line Optimization

Dimitris Bertsimas (dbertsim@mit.edu) and Velibor V. Mišić (velibor.misic@anderson.ucla.edu)
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Dimitris Bertsimas: Sloan School of Management and Operations Research Center, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Velibor V. Mišić: Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095

Operations Research, 2019, vol. 67, issue 3, 651-670

Abstract: Which products should a firm offer based on its customers’ preferences? This is the question posed in the problem of product line design, a well-studied and notoriously difficult problem that is central in marketing science. In “Exact First-Choice Product Line Optimization” by Dimitris Bertsimas and Velibor V. Mišić, the authors propose a new approach for solving this problem when segments of customers choose products according to a ranking. They propose a new mixed-integer optimization model of the problem, which they show to be tighter than prior formulations, and a solution approach based on Benders decomposition, which exploits the surprising fact that the subproblem can be solved efficiently for both integer and fractional master solutions. A well-known product line instance based on a conjoint data set of over 3,000 products and 300 respondents, which required a week of computation time to solve in prior work, is solved by the authors’ approach in just over 10 minutes.

Keywords: product line design; first-choice models; mixed-integer optimization; Benders decomposition (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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