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

Hongmin Li, Woonghee Tim Huh

Research output: Contribution to journalReview article

70 Scopus citations

Abstract

We consider the problem of pricing multiple differentiated products with the nested logit model and, as a special case, the multinomial logit model. We prove that concavity of the total profit function with respect to market share holds even when price sensitivity may vary with products. We use this result to analytically compare the optimal monopoly solution to oligopolistic equilibrium solutions. To demonstrate further applications of the concavity result, we consider several multiperiod dynamic models that incorporate the pricing of multiple products in the context of inventory control and revenue management, and establish structural results of the optimal policies.

Original languageEnglish (US)
Pages (from-to)549-563
Number of pages15
JournalManufacturing and Service Operations Management
Volume13
Issue number4
DOIs
StatePublished - Sep 1 2011

Keywords

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

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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