Optimizing multinomial logit profit functions
Article Abstract:
The multinomial logit model is commonly used to estimate purchase probabilities in product line problems. However, problems arise when the purchase probabilities are multiplied by product contribution margins. This results in a non-concave profit function which, in turn, presents the risk that standard nonlinear search procedures may end at a local optimum that does not approximate the global optimum. To resolve this problem, a simple method based on a path-following procedure is developed that eliminates the need for global concavity. The objective of this new solution technique is to seek a 'path' of prices from the global optimum of a related but concave logit profit function to the global optimum of the true but non-concave logit profit function.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1996
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Optimal bundle pricing
Article Abstract:
Many firms may find it difficult to develop effective pricing strategies and frequently must consider issues such as what type of selection should pricing encourage; whether strategies should promote segmented purchasing; and whether all product components should be offered in a product line. These issues pertain to bundle pricing. An examination of a single firm bundle pricing problem suggests that the bundle pricing dilemma can be perceived as a disjunctive program which is developed as a linear program. Using this approach, a number of reservation and cost factors, as well as multiple components are examined. Research results suggest new economic insights pertaining to the effectiveness and the role of bundling, which are discussed.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1990
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Multinomial logit market share models: equilibrium characteristics and strategic implications
Article Abstract:
The multinomial logit model (MNL) was proven to be appropriate for market equilibrium analyses. The model describes the market share specification, which was used in a study to examine the optimal pricing and marketing mix decisions, and determine the conditions for equilibrium analyses in a competitive context. Moreover, the MNL-derived market share specification was used in this study to investigate the responses of incumbent firms to the entry of a new competitor and their responses to possible market expansion. The use of MNL in this study provides an alternative to research that relies solely on multiplicative competitive interaction model. Managerial and marketing implications were also derived as a result of this MNL study.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1998
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