Pricing multiple products with the multinomial logit and nested logit models: Concavity and implications

Manufacturing and Service Operations Management

Volumn 13, Issue 4, 2011, Pages 549-563

  Li, Hongmin ^a   Huh, Woonghee Tim ^b  

^a ARIZONA STATE UNIVERSITY   (United States)

^b UNIVERSITY OF BRITISH COLUMBIA   (Canada)

Author keywords

Consumer choice; Multinomial logit model; Multiproduct pricing; Nested logit model; Price competition with differentiated products; Quantity competition with differentiated products

Indexed keywords

CONSUMER CHOICE; MULTI-PRODUCTS; MULTINOMIAL LOGIT MODEL; NESTED LOGIT MODEL; PRICE COMPETITION; QUANTITY COMPETITION WITH DIFFERENTIATED PRODUCTS;

COMPETITION; COSTS; ECONOMICS; MATHEMATICAL MODELS; OPTIMIZATION; PROFITABILITY;

COMMERCE;

EID: 80054895219     PISSN: 15234614     EISSN: 15265498     Source Type: Journal    
DOI: 10.1287/msom.1110.0344     Document Type: Review

References (53)

1. Akçay, Y., H. P. Natarajan, S. H. Xu. 2010. Joint dynamic pricing of multiple perishable products under consumer choice. Management Sci. 56(8) 1345-1361.
2. Allon, G., A. Federgruen, M. Pierson. 2010. Price competition under multinomial logit demand functions with random coefficients. Working paper, Northwestern University, Evanston, IL.
3. Anderson, S. P., A. de Palma. 1992. Multiproduct firms: A nested logit approach. J. Indust. Econom. 40(3) 261-276.
4. Anderson, S. P., A. de Palma, J.-F. Thisse. 1992. Discrete Choice Theory of Product Differentiation. MIT Press, Cambridge, MA.
5. Aydin, G., E. L. Porteus. 2008. Joint inventory and pricing decisions for an assortment. Oper. Res. 56(5) 1247-1255.
6. Aydin, G., J. K. Ryan. 2000. Product line selection and pricing under the multinomial logit choice model. Working paper, School of Industrial Engineering, Purdue University, West Lafayette, IN.
7. Bernstein, F., A. Federgruen. 2004. A general equilibrium model for industries with price and service competition. Oper. Res. 52(6) 868-886. (Pubitemid 40122348)
8. Berry, S. 1994. Estimating discrete-choice models of product differentiation. RAND J. Econom. 25(2) 242-262.
9. Berry, S., J. Levinsohn, A. Pakes. 1995. Automobile prices in market equilibrium. Econometrica 63(4) 841-890.
10. Berry, S., J. Levinsohn, A. Pakes. 2004. Differentiated products demand systems from a combination of micro and macro data: The new car market. J. Political Econom. 112(1) 68-82.
11. Besanko, D., J. Dub, S. Gupta. 2003. Competitive price discrimination strategies in a vertical channel using aggregate retail data. Management Sci. 49(9) 1121-1138.
12. Besanko, D., S. Gupta, D. Jain. 1998. Logit demand estimation under competitive pricing behavior: An equilibrium framework. Management Sci. 44(11) 1533-1547. (Pubitemid 128617769)
13. Bhat, C. 1995. A heteroscedastic extreme value model of intercity mode choice. Transportation Res. Part B: Methodological 29(6) 471-483. (Pubitemid 26466630)
14. Bitran, G., R. Caldentey, R. Vial. 2010. Pricing policies for perishable products with demand substitution. Working paper, Sloan School of Management, MIT, Cambridge, MA.
15. Boyd, S., L. Vandenberghe. 2004. Convex Optimization. Cambridge University Press, Cambridge, UK.
16. Cachon, G. P., A. G. Kok. 2007. Category management and coordination in retail assortment planning in the presence of basket shopping consumers. Management Sci. 53(6) 934-951. (Pubitemid 351159625)
17. Cachon, G. P., C. Terwiesch, Y. Xu. 2008. The impact of consumer search, firm entry, and competition on assortment and pricing. Marketing Sci. 27(3) 461-473.
18. Chen, K., W. H. Hausman. 2000. Technical note: Mathematical properties of the optimal product line selection problem using choice-based conjoint analysis. Management Sci. 46(2) 327-332. (Pubitemid 30594352)
19. Chen, X., D. Simchi-Levi. 2004. Coordinating inventory control and pricing strategies with random demand and fixed ordering cost: The infinite horizon case. Math. Oper. Res. 52(6) 887-896. (Pubitemid 40122349)
20. Corless, R. M., G. H. Gonnet, D. E. G. Hare, D. J. Jeffrey, D. E. Knuth. 1996. On the Lambert W function. Adv. Computational Math. 5(1) 329-359. (Pubitemid 126729167)
21. Dong, L., P. Kouvelis, Z. Tian. 2009. Dynamic pricing and inventory control of substitute products. Manufacturing Service Oper. Management 11(2) 317-339.
22. Dubin, J. A. 1986. A nested logit model of space and water heat system choice. Marketing Sci. 5(2) 112-124.
23. Erdem, T., J. Swait, J. Louviere. 2002. The impact of brand credibility on consumer price sensitivity. Internat. J. Res. Marketing 19(1) 1-19.
24. Farahat, A., G. Perakis. 2010. A nonnegative extension of the affine demand function and equilibrium analysis for multiproduct price competition. Oper. Res. Lett. 38(4) 180-286.
25. Farahat, A., G. Perakis. 2011. Technical note-A comparison of Bertrand and Cournot profits in oligopolies with differentiated products. Oper. Res. 59(2) 507-513.
26. Friedman, J. W. 1988. On the strategic importance of prices versus quantities. RAND J. Econom. 19(4) 607-622.
27. Gallego, G., G. van Ryzin. 1997. A multiproduct dynamic pricing problem and its applications to network yield management. Oper. Res. 45(1) 24-41. (Pubitemid 127684684)
28. Gallego, G., W. T. Huh, W. Kang, R. Phillips. 2006. Price competition with the attraction demand model: Existence of unique equilibrium and its stability. Manufacturing Service Oper. Management 8(4) 359-375. (Pubitemid 44495266)
29. Goldberg, P. K. 1995. Product differentiation and oligopoly in international markets: The case of the U.S. automobile industry. Econometrica 63(4) 891-951.
30. Greene, D. L. 1991. Short-run pricing strategies to increase corporate average fuel economy. Econom. Inquiry 29(1) 101-114.
31. Greene, W. 2003. Econometric Analysis. Prentice Hall, Upper Saddle River, NJ.
32. Guadagni, P. M., J. D. C. Little. 1983. A logit model of brand choice calibrated on scanner data. Marketing Sci. 2(3) 203-238.
33. Hanson, W., K. Martin. 1996. Optimizing multinomial logit profit functions. Management Sci. 42(7) 992-1003. (Pubitemid 126594425)
34. Hopp, W. J., X. Xu. 2005. Product line selection and pricing with modularity in design. Manufacturing Service Oper. Management 7(3) 172-187. (Pubitemid 41365604)
35. Hopp, W. J., X. Xu. 2008. A static approximation for dynamic demand substitution with applications in a competitive market. Manufacturing Service Oper. Management 56(3) 630-645.
36. Huh, W. T., G. Janakiraman. 2008. (s, S) optimality in joint inventory-pricing control: An alternate approach. Oper. Res. 56(3) 783-790.
37. Kannan, P., G. P. Wright. 1991. Modeling and testing structured markets: A nested logit approach. Marketing Sci. 10(1) 58-82.
38. Li, H. 2007. Essays on supply chain contracting and tactical decisions for inter-generational product transitions. Ph.D. thesis, Sloan School of Management, MIT, Cambridge, MA.
39. Li, H., S. C. Graves. 2011. Pricing decisions during intergenerational product transitions. Productions Oper. Management, ePub ahead of print January 10, http://onlinelibrary.wiley .com/doi/10.1111/j.1937-5956.2010.01216.x/ abstract.
40. Luce, R. D. 1959. Individual Choice Behavior: A Theoretical Analysis. Wiley, New York
41. Luo, L., P. K. Kannan, B. T. Ratchford. 2007. New product development under channel acceptance. Marketing Sci. 26(2) 149-163.
42. Maddah, B., E. K. Bish. 2007. Joint pricing, assortment, and inventory decisions for a retailer's product line. Naval Res. Logist. 54(3) 315-330. (Pubitemid 46542991)
43. Maglaras, C., J. Meissner. 2006. Dynamic pricing strategies for multiproduct revenue management problems. Manufacturing Service Oper. Management 8(2) 136-148. (Pubitemid 43666201)
44. Mas-Colell, A., M. Whinston, J. Green. 1995. Microeconomic Theory. Oxford University Press, New York.
45. McFadden, D. 1978. Modelling the choice of residential location. A. Karlquist, L. Lundqvist, F. Snickars, J. W. Weibull, eds. Spatial Interaction Theory and Planning Models. North-Holland, Amsterdam.
46. McFadden, D. 1980. Econometric models for probabilistic choice among products. J. Bus. 53(3) S13-S29.
47. McFadden, D. 1986. The choice theory approach to market research. Marketing Sci. 5(4) 275-297.
48. McFadden, D. L. 1974. Conditional logit analysis of qualitative choice behavior. P. Zarembka, ed. Frontiers in Econometrics. Academic Press, New York, 105-142.
49. Nevo, A. 2001. Measuring market power in the ready-to-eat cereal industry. Econometrica 69(2) 307-342. (Pubitemid 33645351)
50. Scarf, H. 1959. The Optimality of (S, s) Policies in the Dynamic Inventory Problem. Stanford University Press, Palo Alto, CA, 196-202.
51. Song, J.-S., Z. Xue. 2007. Demand management and inventory control for substitutable products. Working paper, Duke University, Durham, NC.
52. Train, K. 2003. Discrete Choice Methods with Simulation. Cambridge University Press, Cambridge, UK.
53. Train, K. E., D. L. McFadden, M. Ben-Akiva. 1987. The demand for local telephone service: A fully discrete model of residential calling patterns and service choices. RAND J. Econom. 18(1) 109-123. (Pubitemid 17569367)