A fractional programming method for optimal assortment under the nested-logit model
Laurent Alfandari  1@  , Alborz Hassanzadeh  2@  , Ivana Ljubic  3@  
1 : ESSEC Business School  (ESSEC)  -  Website
ESSEC Business School
2 : ESSEC Business School
ESSEC Business School
3 : ESSEC Business School
ESSEC Business School - CS 50105 - 95021 CERGY-PONTOISE CEDEX - FRANCE

We look at finding an assortment of products maximizing the expected revenue, where customer preferences are modeled by a nested logit choice model. This combinatorial problem is polynomial in a specific case and NP-hard otherwise. We provide an exact general method that embeds a tailored Branch-and-Bound algorithm into a fractional programming framework. We show that the fractional programming parameterized subproblem, a highly non-linear binary optimization problem, is decomposable by nests. The non-linear subproblem for each nest is solved by a tailored Branch-and-Bound algorithm with specific upper bounds. Our approach can solve instances with 5 nests and up to 5000 products per nest.



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