Garrett van Ryzin
On the relationship between inventory costs and variety benefits in retail assortments
Coauthor(s): Siddharth Mahajan.
Adobe Acrobat PDF
Consider a category of product variants distinguished by some attribute such as color or flavor. A retailer must construct an assortment for the category, i.e., select a subset variants to stock and determine purchase quantities for each offered variant. We analyze this problem using a multinomial logit model to describe the consumer choice process and a newsboy model to represent the retailer's inventory cost. We show that the optimal assortment has a simple structure and provide insights on how various factors affect the optimal level of assortment variety. We also develop a formal definition of the level of fashion in a category using the theory of majorization and examine its implications for category profits.
Source: Management Science
van Ryzin, Garrett, and Siddharth Mahajan. "On the relationship between inventory costs and variety benefits in retail assortments." Management Science 45, no. 11 (1999): 1496-1509.