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The Multiproduct Newsvendor Problem with Customer Choice

Author

Listed:
  • Amr Farahat

    (Olin Business School, Washington University, St. Louis, Missouri 63130)

  • Joonkyum Lee

    (Sogang Business School, Sogang University, Seoul 04107, South Korea)

Abstract

We address the multiproduct newsvendor problem under a general specification of customer choice behavior. We develop a methodology that yields upper bounds on the optimal value as well as feasible inventory solutions. The methodology is based on an approximate Jordan decomposition of the state transition matrix. Two specializations of the methodology are presented: one leads to a decomposition by customer into a sequence of assortment optimization problems and the second leads to a decomposition by product into a collection of independent newsvendor problems. We conduct computational experiments and find that the proposed methodology outperforms existing bounds. The electronic companion is available at https://doi.org/10.1287/opre.2017.1654 .

Suggested Citation

  • Amr Farahat & Joonkyum Lee, 2018. "The Multiproduct Newsvendor Problem with Customer Choice," Operations Research, INFORMS, vol. 66(1), pages 123-136, January.
    • Handle: RePEc:inm:oropre:v:66:y:2018:i:1:p:123-136
    DOI: 10.1287/opre.2017.1654
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    References listed on IDEAS

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    Cited by:

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    2. Erkip, Nesim Kohen, 2023. "Can accessing much data reshape the theory? Inventory theory under the challenge of data-driven systems," European Journal of Operational Research, Elsevier, vol. 308(3), pages 949-959.
    3. Transchel, Sandra & Buisman, Marjolein E. & Haijema, Rene, 2022. "Joint assortment and inventory optimization for vertically differentiated products under consumer-driven substitution," European Journal of Operational Research, Elsevier, vol. 301(1), pages 163-179.
    4. Menezes, Mozart B.C. & Pinto, Roberto, 2022. "Product proliferation, cannibalisation, and substitution: A first look into entailed risk and complexity," International Journal of Production Economics, Elsevier, vol. 243(C).

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