The main contribution of this paper resides in proposing a carefully crafted dynamic programming approach for capacitated assortment optimization under the nested logit model in its utmost generality. Specifically, we show that the optimal revenue can be efficiently approached within any degree of accuracy by synthesizing ideas related to continuous-state dynamic programming, state space discretization, and sensitivity analysis of modified revenue functions. These developments allow us to devise the first fully polynomial-time approximation scheme in this context, thus resolving fundamental open questions posed in previous papers.
Bibliographical noteFunding Information:
Funding: This work was supported by the Israel Science Foundation [Grants 1407/20 and 148/16].
Copyright: © 2022 INFORMS.
- approximation scheme
- assortment optimization
- dynamic programming
ASJC Scopus subject areas
- Computer Science Applications
- Management Science and Operations Research