In this research project conducted in collaboration with Dr. Bacel Maddah and Hussein Tarhini, we focused on the interdependent decisions related to assortment, inventory, and pricing of substitutable products. These products were differentiated by various attributes based on a nested logit consumer choice model. The study was set in a newsvendor-type scenario where multiple products competed for demand during a single selling season, all with equal profit margins.

Our research considered a demand structure with a multiplicative-additive nature, where both variance and coefficient of variation depended on the common profit margin. While this added to the applicability of the model, it also introduced challenges in terms of tractability. We utilized a Taylor series-type approximation and demonstrated that the expected profit had a unimodal distribution concerning the common profit margin of products within an assortment.

We further compared the optimal profit margin in our research to the scenario of ample inventory, shedding light on the impact of inventory levels on pricing decisions. Additionally, we explored the optimal assortment problem when pricing decisions were exogenously determined. Our results confirmed the classic findings regarding the optimality of popular sets under tight approximations of the profit function.

As a culmination of our work, we proposed a heuristic approach that jointly addressed assortment, pricing, and inventory decisions. This approach assumed equal profit margins for products and leveraged popular sets exclusively. Our extensive numerical analysis demonstrated that this equal-margin heuristic consistently generated high-quality solutions.

It is worth noting that our research paper was published in the IISE journal and featured in the IISE magazine for the month of May 2023. Furthermore, we were honored to be selected to present and discuss our paper at the 2023 IISE Conference that took place in New Orleans.