Optimal retail assortments for substitutable items purchased in sets

Narendra Agrawal and Stephen A. Smith

Naval Research Logistics (NRL), 2003, vol. 50, issue 7, 793-822

Abstract: We consider the problem of optimizing assortments in a multi‐item retail inventory system. In addition to the usual holding and stockout costs, there is a fixed cost for including any item in the assortment. Customers' preferences for items include both probabilistic substitution patterns and the desire to purchase sets of complementary items. We develop a demand model to capture this behavior, and derive tractable approximations that allow us to formulate the optimization problem as a 0–1 mixed integer linear program. Numerical examples are solved to illustrate key insights into how both complementary and substitute items affect the optimal assortment and the expected profit. © 2003 Wiley Periodicals, Inc. Naval Research Logistics 50: 793–822, 2003.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:50:y:2003:i:7:p:793-822

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