Price optimization under the extended nested logit model

We examine multi-product price optimization of the extended nested logit (ENL) model proposed by Kovach and Tserenjigmid, including the nested logit, increasing linear nested stochastic, and two-stage nested attraction models as special cases. The well-known constant adjusted markup and adjusted nest -level markup properties are extended to ENL. In addition, we present sufficient conditions under which the objective function is unimodal. We also provide the upper and lower bounds of the optimal adjusted nest-level markup when preconditions are not met.(c) 2022 Elsevier B.V. All rights reserved.

Automated summary

This paper examines multi-product price optimization using the extended nested logit (ENL) model, which includes nested logit, increasing linear nested stochastic, and two-stage nested attraction models as special cases. The well-known constant adjusted markup and adjusted nest-level markup properties are extended to ENL. The authors also provide sufficient conditions under which the objective function is unimodal and provide upper and lower bounds for the optimal adjusted nest-level markup when preconditions are not met.