On the Relationship Between Inventory Costs and Variety Benefits in Retail Assortments

Garrett van Ryzin and Siddharth Mahajan
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Garrett van Ryzin: Graduate School of Business, Columbia University, Uris Hall, 3022 Broadway, New York, New York 10027
Siddharth Mahajan: The Fuqua School of Business, Duke University, Box 90120, Durham, North Carolina 27708-0120

Management Science, 1999, vol. 45, issue 11, 1496-1509

Abstract: Consider a category of product variants distinguished by some attribute such as color or flavor. A retailer must construct an assortment for the category, i.e., select a subset variants to stock and determine purchase quantities for each offered variant. We analyze this problem using a multinomial logit model to describe the consumer choice process and a newsboy model to represent the retailer's inventory cost. We show that the optimal assortment has a simple structure and provide insights on how various factors affect the optimal level of assortment variety. We also develop a formal definition of the level of fashion in a category using the theory of majorization and examine its implications for category profits.

Keywords: variety; inventory; retailing; consumer choice; assortment; optimization; newsboy; fashion; majorization; multinomial logit (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (168)

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