Pricing Multiple Products with the Multinomial Logit and Nested Logit Models: Concavity and Implications

Hongmin Li () and Woonghee Tim Huh ()
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Hongmin Li: W.P. Carey School of Business, Arizona State University, Tempe, Arizona 85287
Woonghee Tim Huh: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada

Manufacturing & Service Operations Management, 2011, vol. 13, issue 4, 549-563

Abstract: We consider the problem of pricing multiple differentiated products with the nested logit model and, as a special case, the multinomial logit model. We prove that concavity of the total profit function with respect to market share holds even when price sensitivity may vary with products. We use this result to analytically compare the optimal monopoly solution to oligopolistic equilibrium solutions. To demonstrate further applications of the concavity result, we consider several multiperiod dynamic models that incorporate the pricing of multiple products in the context of inventory control and revenue management, and establish structural results of the optimal policies.

Keywords: multinomial logit model; nested logit model; consumer choice; multiproduct pricing; price competition with differentiated products; quantity competition with differentiated products (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (87)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:13:y:2011:i:4:p:549-563

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