assortment planning and inventory decisions under stockout based substitution we present an efficient dynamic programming algorithm to determine the optimal assortment and inventory levels in a single period problem with stockout based substitution in our model total customer demand is random and comprises fixed proportion of customers of different types customer preferences are modeled through the definition of these types each customer type corresponds to a specific preference ordering among products a customer purchases the highest ranked product according to his type if any that is available at the time of his visit to the store stockout based substitution we solve the optimal assortment problem using a dynamic programming formulation we establish structural properties of the value function of the dynamic program that in particular help to characterize multiple local maxima we use the properties of the optima to solve the problem in pseudopolynomial time our algorithm also gives a heuristic for the general case i e when the proportion of customers of each type is random in numerical tests this heuristic performs better and faster than previously known methods especially when the mean demand is large the degree of substitutability is high the population is homogeneous or prices and or costs vary across products

optimizing multinomial logit profit functions the multinomial logit model is a standard approach for determining the probability of purchase in product line problems when the purchase probabilities are multiplied by product contribution margins the resulting profit function is generally nonconcave because of this standard nonlinear search procedures may terminate at a local optimum which is far from the global optimum we present a simple procedure designed to alleviate this problem the key idea of this procedure is to find a path of prices from the global optimum of a related but concave logit profit function to the global optimum of the true but nonconcave logit profit function

conditions that cause risk pooling to increase inventory abstract we say product a is a partial substitute for product b if a fraction of the customers who prefer b are willing to accept a when b is out of stock when demand is uncertain it is intuitive and true that a larger willing to substitute fraction implies larger expected profits a higher willing to substitute fraction allows one to pool the risk of individual products it may also be intuitive that a larger willing to substitute fraction might result in lower optimal total inventory for the full substitution structure several researchers have shown that for certain distributions such as the exponential this latter intuition is not true we show that this full substitution anomaly can occur with any right skewed demand distribution we assume i i d demand distributions unless we indicate otherwise we also show that the anomaly can occur for a number of realistic situations of partial substitution with commonly used demand distributions such as normal exponential poisson and uniform we also demonstrate the anomaly for more than one period with backlogging lost sales more than two products and with setup costs

post normal science in practice a q study of the potential for sustainable forestry in washington state usa abstract some ecological economists have advocated participatory decision methods in which people act as citizens rather than consumers as an epistemologically preferable alternative to a price based valuation approach for determining the disposition of ecosystems q method is a research technique advocated by proponents of discursive democracy to assess the self described attitudes of participants in discourse around a particular topic techniques that attempt to discern public values around ecological systems without imposing contrived e g only monetary or unintentionally biased frameworks can be seen as advancing ecological economics as a post normal science understanding the attitudes of groups involved in conflict over ecosystem use is crucial for designing policies that have a chance of being implemented as well as being equitable and sustainable thus the use of q method is an essential step for supporting successful public participation in decisions affecting ecosystem sustainability this paper reports the results of a q study designed to ascertain 1 the potential to find a common basis for cooperation among groups with a long history of conflict over forest management issues in the pacific northwest of the united states and 2 the extent to which current science pertaining to sustainable forest ecosystem management is commonly understood among these same actors participants were asked to rank 64 statements about forest management in the region including definitions of sustainable forestry on a scale of 4 strongly agree to 4 strongly disagree thirty people with a wide variety of backgrounds and experience with forest issues performed this q sort and then were interviewed to provide context for their answers the individual q sorts were correlated and factor analyzed to derive ideal discourse types three distinct discourses about sustainable forestry emerged from the factor analysis results indicate a strong desire across stakeholder groups to engage in participatory decision making with people from all sides of the issues there also appears to be a lack of consensus about the exact meaning of sustainable forestry and a lack of familiarity with scientific concepts of ecosystem resilience among some groups recommendations for additional ways in which q method can be applied by ecological economists as a practical means of advancing the field as a post normal science are described in the concluding section

a market discovery algorithm to estimate a general class of nonparametric choice models we propose an approach for estimating customer preferences for a set of substitutable products using only sales transactions and product availability data the underlying demand framework combines a general nonparametric discrete choice model with a bernoulli process of arrivals over time the choice model is defined by a discrete probability mass function pmf on a set of possible preference rankings of alternatives and it is compatible with any random utility model an arriving customer is assumed to purchase the available option that ranks highest in her preference list the problem we address is how to jointly estimate the arrival rate and the pmf of the rank based choice model under a maximum likelihood criterion since the potential number of customer types is factorial we propose a market discovery algorithm that starts with a parsimonious set of types and enlarge it by automatically generating new types that increase the likelihood value numerical experiments confirm the potential of our proposal for a realistic data set in the hospitality industry our approach improves the root mean square errors between predicted and observed purchases computed under independent demand model estimates by 67 to 93 this paper was accepted by serguei netessine operations management

seeking sustainability discourses with q methodology abstract this paper outlines the potential benefit of q methodology for the study of environmental issues within ecological economics based on research into lets local employment and trading systems in the united kingdom q methodology is a qualitative but statistical approach to enable the discovery of a variety of discourses concerning how individuals understand their behaviour and how they understand the social and environmental worlds in which they live q methodology thus has the capacity to allow a more effective form of policy making and implementation process the paper introduces some of the basic tenets of q methodology illustrates these with results drawn from the study mentioned above and concludes by indicating the potential this methodology holds for ecological economics research

piketty and the growth dilemma revisited in the context of ecological economics 2017 elsevier b v piketty s capital has provoked considerable debate regarding inequality the existence of increasing inequality creates a challenge for ecological economics in this paper we set out some of the problems inherent in piketty s approach and how they are addressed from the point of view of ecological economics we use jackson and victor s response as a point of departure to make several points piketty s work involves an unreconciled inconsistency between his laws and the institutional context which becomes problematic when one starts to think about inevitability he simply assumes away ecological problems to make future forecasts for inequality as such his forecasts are undermined since ecological issues are fundamental to any viable future economy furthermore piketty effectively reproduces rather than contests the mainstream practice of delegating ecological issues to a sub discipline jackson and victor meanwhile focus on the mainstream economic aspect of piketty s work and construct a model to contest a model in so doing they provide an ideational response to what is also a problem of ideological frameworks though it can be important to contest an idea they inadvertently through family resemblance contribute to the reproduction of the problematic position of ecological concerns within dominant ways of conceiving economics

single period multiproduct inventory models with substitution we study a single period multiproduct inventory problem with substitution and proportional costs and revenues we consider n products and n demand classes with full downward substitution i e excess demand for class i can be satisfied using product j for i j we first discuss a two stage profit maximization formulation for the multiproduct substitution problem we show that a greedy allocation policy is optimal we use this to write the expected profits and its first partials explicitly this in turn enables us to prove additional properties of the profit function and several interesting properties of the optimal solution in a limited computational study using two products we illustrate the benefits of solving for the optimal quantities when substitution is considered at the ordering stage over similar computations without considering substitution while ordering specifically we show that the benefits are higher with high demand variability low substitution cost low profit margins or low price to cost ratio high salvage values and similarity of products in terms of prices and costs

inventory competition for newsvendors under the objective of profit satisficing abstract inventory competition for newsvendors nvs has been studied extensively under the objective of expected profit maximization which is based on risk neutrality in this paper we study this classic problem under the objective of profit satisficing which is based on downside risk aversion consistent with prior literature we consider two possible scenarios in the first scenario each nv s demand depends on the stocking levels of all nvs other than herself in this scenario we show that there is a unique nash equilibrium where all nvs optimally order as if they were independent in the second scenario each nv s demand depends on the stocking levels of all nvs including herself we prove the existence of nash equilibrium for both additive and multiplicative forms of demands as a special case we also study symmetrical nvs under the proportional allocation model we show that at equilibrium if the number of nvs exceeds a threshold the market becomes highly competitive

marketed surpluses of agricultural households in sierra leone an agricultural household model is used with household level data from sierra leone to estimate elasticities of marketed surplus for several outputs and for labor with respect to price and nonprice variables positive own price elasticities are found with magnitudes considerably above own price output elasticities changes in household characteristics and production technology also affect marketed surpluses but not always in anticipated directions elasticities are reported for households when grouped by their total expenditure not just for the sample mean the differences are important showing that low expenditure households respond as much as high expenditure households

a nonparametric approach to modeling choice with limited data choice models today are ubiquitous across a range of applications in operations and marketing real world implementations of many of these models face the formidable stumbling block of simply identifying the right model of choice to use because models of choice are inherently high dimensional objects the typical approach to dealing with this problem is positing a priori a parametric model that one believes adequately captures choice behavior this approach can be substantially suboptimal in scenarios where one cares about using the choice model learned to make fine grained predictions one must contend with the risks of mis specification and overfitting underfitting thus motivated we visit the following problem for a generic model of consumer choice namely distributions over preference lists and a limited amount of data on how consumers actually make decisions such as marginal information about these distributions how may one predict revenues from offering a particular assortment of choices an outcome of our investigation is a nonparametric approach in which the data automatically select the right choice model for revenue predictions the approach is practical using a data set consisting of automobile sales transaction data from a major u s automaker our method demonstrates a 20 improvement in prediction accuracy over state of the art benchmark models this improvement can translate into a 10 increase in revenues from optimizing the offer set we also address a number of theoretical issues among them a qualitative examination of the choice models implicitly learned by the approach we believe that this paper takes a step toward automating the crucial task of choice model selection this paper was accepted by yossi aviv operations management

optimizing retail assortments retailers face the problem of finding the assortment that maximizes category profit this is a challenging task because the number of potential assortments is very large when there are many stock keeping units skus to choose from moreover sku sales can be cannibalized by other skus in the assortment and the more similar skus are the more this happens this paper develops an implementable and scalable assortment optimization method that allows for theory based substitution patterns and optimizes real life large scale assortments at the store level we achieve this by adopting an attribute based approach to capture preferences substitution patterns and cross marketing mix effects to solve the optimization problem we propose new very large neighborhood search heuristics we apply our methodology to store level scanner data on liquid laundry detergent the optimal assortments are expected to enhance retailer profit considerably 37 3 and this profit increases even more to 43 7 when sku prices are optimized simultaneously

joint inventory and pricing decisions for an assortment we seek optimal inventory levels and prices of multiple products in a given assortment in a newsvendor model single period stochastic demand under price based substitution but not stockout based substitution we address a demand model involving multiplicative uncertainty motivated by market share models often used in marketing the pricing problem that arises is known not to be well behaved in the sense that in its deterministic version the objective function is not jointly quasi concave in prices however we find that the objective function is still reasonably well behaved in the sense that there is a unique solution to the first order conditions and this solution is optimal for our problem

bundle pricing of inventories with stochastic demand we consider a retailer selling a fixed inventory of two perishable products over a finite horizon assuming poisson arrivals and a bivariate reservation price distribution we determine the optimal product and bundle prices that maximize the expected revenue our results indicate that the performances of mixed bundling pure bundling and unbundled sales strategies heavily depend on the parameters of the demand process and the initial inventory levels bundling appears to be most effective with negatively correlated reservation prices and high starting inventory levels when the starting inventory levels are equal and in excess of average demand most of the benefits of bundling can be achieved through pure bundling however the mixed bundling strategy dominates the other two when the starting inventory levels are not equal we also observe that an incorrect modeling of the reservation prices may lead to significant losses the model is extended to allow for price changes during the selling horizon it is shown that offering price bundles mid season may be more effective than changing individual product prices

a static approximation for dynamic demand substitution with applications in a competitive market we propose a static approximation of dynamic demand substitution behavior based on a fluid network model and a service inventory mapping this approximation greatly enhances our ability to analyze the interdependent inventory service price and product assortment decisions in noncompetitive and competitive scenarios with demand substitution we demonstrate that the approximation is well behaved and then apply it to two previously intractable applications first we study a price and service competition between single product retailers after establishing a unique pure strategy nash equilibrium we find that competition results in lower price higher demand and a higher level of inventory we also observe that the aggregate profit and inventory level increase to positive constants as the number of retailers goes to infinity second we study a duopolistic competition on price service and product assortment we establish a pure strategy nash equilibrium for the product assortment competition and identify a condition for uniqueness we find that competition on both price and product assortment results in lower price and less variety for each competitor but the total number of products and the aggregate inventory level in a duopoly market are both likely to be higher than in a monopolistic market

dynamic assortment with demand learning for seasonal consumer goods companies such as zara and world co have recently implemented novel product development processes and supply chain architectures enabling them to make more product design and assortment decisions during the selling season when actual demand information becomes available how should such retail firms modify their product assortment over time in order to maximize overall profits for a given selling season focusing on a stylized version of this problem we study a finite horizon multiarmed bandit model with several plays per stage and bayesian learning our analysis involves the lagrangian relaxation of weakly coupled dynamic programs dps results contributing to the emerging theory of dp duality and various approximations it yields a closed form dynamic index policy capturing the key exploration versus exploitation trade off and associated suboptimality bounds in numerical experiments its performance proves comparable to that of other closed form heuristics described in the literature but this policy is particularly easy to implement and interpret this last feature enables extensions to more realistic versions of the motivating dynamic assortment problem that include implementation delays switching costs and demand substitution effects

transferring environmental value estimates issues and alternatives abstract environmental value transfer needs to be understood in the context of scientific information use in general this provides a different perspective upon the reasons why benefit transfer in particular appears so controversial and raises concerns over the limited types of validity testing being undertaken by those supporting such applications as ecosystem services valuation another key issue which we emphasise is the unintentional challenge to standard economic theory raised by the models used to conduct value transfers existing value transfer practice reveals the need for a more inclusive approach if environmental values are to be addressed we argue that there are robust alternative means for including multiple environmental values in decision processes these cannot be dismissed out of hand and analysts should be expanding their understanding of the available approaches which include attitude and norm measures multi criteria analysis and participatory deliberative institutions

economic valuation of biodiversity sense or nonsense this paper critically evaluates the notion and application of economic monetary valuation of biological diversity or biodiversity for this purpose four levels of diversity are considered genes species ecosystems and functions different perspectives on biodiversity value can be characterized through a number of factors instrumental vs intrinsic values local vs global diversity life diversity vs biological resources etc a classification of biodiversity values is offered based on a system of logical relationships among biodiversity ecosystems species and human welfare suggestions are made about which economic valuation methods can address which type of biodiversity value the resulting framework is the starting point for a survey and evaluation of empirical studies at each of the four levels of diversity the contingent valuation method is by far the most used method an important reason is that the other valuation methods are unable to identify and measure passive or nonuse values of biodiversity at first sight the resulting monetary value estimates seem to give unequivocal support to the belief that biodiversity has a significant positive social value nevertheless most studies lack a uniform clear perspective on biodiversity as a distinct concept from biological resources in fact the empirical literature fails to apply economic valuation to the entire range of biodiversity benefits therefore available economic valuation estimates should generally be regarded as providing a very incomplete perspective on and at best lower bounds to the unknown value of biodiversity changes 2001 elsevier science b v all rights reserved

an integrated assortment and shelf space optimization model with demand substitution and space elasticity effects abstract retailers must define their assortments and assign shelf space to the items included in these assortments these two planning problems are mutually dependent if space is scarce we formulate a model that maximizes a retailer s profit by selecting the optimal assortment and assigning limited shelf space to items this model is the first decision model to integrate assortment and shelf space planning by considering stochastic and space elastic demand out of assortment and out of stock substitution effects to solve the model we develop a specialized heuristic that efficiently yields near optimal results even for large scale problems we show that our approach outperforms alternative approaches e g a sequential planning approach that first picks assortments and then assigns shelf space by up to 18 and a greedy algorithm by up to 16 in terms of profit we test our model on two real data sets for perishable and non perishable items and show how it can support retailers in increasing their profits by up to 25 we then use the model to generalize these results and find that space elasticity and substitution effects have a significant impact on profits assortment size as well as facing decisions and that both effects reinforce each other using our model we finally derive rules of thumb for planners in practice

category management and coordination in retail assortment planning in the presence of basket shopping consumers this paper studies the assortment planning problem with multiple merchandise categories and basket shopping consumers i e consumers who desire to purchase from multiple categories we present a duopoly model in which retailers choose prices and variety level in each category and consumers make their store choice between retail stores and a no purchase alternative based on their utilities from each category the common practice of category management cm is an example of a decentralized regime for controlling assortment because each category manager is responsible for maximizing his or her assigned category s profit alternatively a retailer can make category decisions across the store with a centralized regime we show that cm never finds the optimal solution and provides both less variety and higher prices than optimal in a numerical study we demonstrate that profit loss due to cm can be significant finally we propose a decentralized regime that uses basket profits a new metric rather than accounting profits basket profits are easily evaluated using point of sale data and the proposed method produces near optimal solutions

assortment optimization under variants of the nested logit model we study a class of assortment optimization problems where customers choose among the offered products according to the nested logit model there is a fixed revenue associated with each product the objective is to find an assortment of products to offer so as to maximize the expected revenue per customer we show that the problem is polynomially solvable when the nest dissimilarity parameters of the choice model are less than one and the customers always make a purchase within the selected nest relaxing either of these assumptions renders the problem np hard to deal with the np hard cases we develop parsimonious collections of candidate assortments with worst case performance guarantees we also formulate a convex program whose optimal objective value is an upper bound on the optimal expected revenue thus we can compare the expected revenue provided by an assortment with the upper bound on the optimal expected revenue to get a feel for the optimality gap of the assortment by using this approach our computational experiments test the performance of the parsimonious collections of candidate assortments that we develop

joint determination of food consumption and production in rural sierra leone estimates of a household firm model abstract this paper investigates the determination of food consumption for rural households in sierra leone that produce the foods which they consume a household firm model is estimated with seven commodities including five foods non foods and labor as compared to three commodities in past studies such food disaggregation permits tracing of the effects of socioeconomic variables on household nutrient availability household specialization in production is such that censored data is a problem a tobit approach is used to correct for this for most crops the own price effects on consumption remain negative when a price change is allowed to shift the budget constraint by effecting the profits from home production elasticities of calorie availability with respect to toal expenditure are found to be sizeable varying little by expenditure group the price elasticities of calorie availability are generally positive however an important exception occurs for price of the staple food rice this exception has several important policy implications which are explored

the assortment packing problem multiperiod assortment planning for short lived products motivated by retailers frequent introduction of new items to refresh product lines and maintain their market shares we present the assortment packing problem in which a firm must decide in advance the release date of each product in a given collection over a selling season our formulation models the trade offs among profit margins preference weights and limited life cycles a key aspect of the problem is that each product is short lived in the sense that once introduced its attractiveness lasts only a few periods and vanishes over time the objective is to determine when to introduce each product to maximize the total profit over the selling season even for two periods the corresponding optimization problem is shown to be np complete as a result we study a continuous relaxation of the problem that approximates the problem well when the number of products is large when margins are identical and product preferences decay exponentially its solution can be characterized it is optimal to introduce products with slower decays earlier the structural properties of the relaxation also help us to develop several heuristics for which we establish performance guarantees we test our heuristics with data on sales and release dates of women s handbags from an accessories retailer the numerical experiments show that the heuristics perform very well and can yield significant improvements in profitability this paper was accepted by yossi aviv operations management

an efficient algorithm for capacitated assortment planning with stochastic demand and substitution abstract the ever increasing product variety in grocery retailing is in conflict with the limited shelf space managing the assortment and regular order quantity for perishable and non perishable products is therefore a core task for retailers retailers want to maximize profit by considering potential revenues purchase costs diminishing profits for products and opportunity costs for unfulfilled demand when determining assortment sizes and order volume to meet stochastic consumer demand we considered a newsvendor based decision model that jointly optimizes assortment size and the associated order volumes for listed items the model considers out of assortment ooa and out of stock oos substitution effects the model is a structural equivalent to the model described in kok and fisher 2007 and solved there via a heuristic procedure we develop an optimal solution procedure and a time efficient heuristic that solves the model the heuristic suggested is applicable for practically relevant large scale problem instances numerical tests reveal that the heuristic procedure produces close to optimal solutions and outperforms the kok and fisher heuristic with regard to both computational time and solution quality a simulation study with discrete demand justifies our approach with using continuous demand distributions the numerical analyses show that considering substitution effects in a decision based model has a significant impact on the total profit and solution structure further managerial insights are presented with regard to assortment heterogeneity when shelf size substitution and demand variability are varied

stocking retail assortments under dynamic consumer substitution we analyze a single period stochastic inventory model newsboy like model in which a sequence of heterogeneous customers dynamically substitute among product variants within a retail assortment when inventory is depleted the customer choice decisions are based on a natural and classical utility maximization criterion faced with such substitution behavior the retailer must choose initial inventory levels for the assortment to maximize expected profits using a sample path analysis we analyze structural properties of the expected profit function we show that under very general assumptions on the demand process total sales of each product are concave in their own inventory levels and possess the so calleddecreasing differences property meaning that the marginal value of an additional unit of the given product is decreasing in the inventory levels of all other products for a continuous relaxation of the problem we then show via counterexamples that the expected profit function is in general not even quasiconcave thus global optimization may be difficult however we propose and analyze a stochastic gradient algorithm for the problem and prove that it converges to a stationary point of the expected profit function under mild conditions finally we apply the algorithm to a set of numerical examples and compare the resulting inventory decisions to those of some simpler naive heuristics the examples show that substitution effects can have a significant impact on an assortment s gross profits the examples also illustrate some systematic distortions in inventory decisions if substitution effects are ignored in particular under substitution one should stock relatively more of popular variants and relatively less of unpopular variants than a traditional newsboy analysis indicates

the multi item newsvendor model with cross selling and the solution when demand is jointly normally distributed abstract products are often demanded in tandem because of the cross selling effect the demand for an item can increase if sales of its cross selling associated items are achieved or decrease when the associated items are out of stock resulting in lost sales therefore a joint inventory policy should be pursued in a cross selling system this paper introduces customer driven cross selling into centralized and competitive newsvendor nv models by representing an item s effective demand as a function of other items order quantities we derive first order optimality conditions for the centralized model in addition to pure strategy nash equilibrium conditions and uniqueness conditions of the equilibria for the competitive model we further develop gradient based gb and iteration based ib algorithms to solve the centralized and competitive models respectively a computational study verifies the effectiveness of the proposed algorithms the computational results show that a larger cross selling effect leads to a larger order quantity in a centralized nv model but a smaller order quantity in a competitive nv model and a larger positive correlation between items demands leads to higher profits with smaller order quantities in both models moreover nvs will order more items if the demand variance is greater however resulting in lower profits in a competitive situation one will prefer smaller order quantities than in a centralized decision situation

inventory management under price based and stockout based substitution abstract we examine a stochastic inventory and pricing problem for a firm that sells two vertically differentiated products the demands for the two products are determined by total random market size and the customers net utility from buying the two products which is determined by the products quality attributes the individual quality valuation unknown to the firm and the selling prices in case the preferred product is out of stock customers may be willing to buy a substitute instead if their net utility is non negative therefore we analyze an inventory and pricing model considering price based and stockout based substitution we show that the demand function is not continuous in price by decomposing the profit function into different price regimes we are able to derive closed form expressions for the stockout based substitution rates upward and downward substitution and the optimal inventory levels under exogenous pricing under endogenous pricing we find that the profit function is not necessarily unimodal however we show that a unique solution exists for the integrated price and inventory problem under price based substitution only numerical results reveal that not considering stockout based substitution i leads to lower profit margins for high quality products and ii may cause severe supply demand mismatches throughout the entire assortment finally we show the performance of two approximated pricing policies

product variety and demand uncertainty why markups vary with quality we demonstrate that demand uncertainty can explain equilibrium product variety in the presence of sunk costs product variety is an efficient response to uncertainty because it reduces the expected costs associated with excess capacity we find that within the firm s product line the highest quality product has the highest profit margin but the lowest percentage margin while the lowest quality product has the highest percentage margin but the lowest absolute margin both of these relationships are consistent with evidence available from marketing studies what determines the breadth of a firm s product line we show that when production costs must be sunk in anticipation of demand demand uncertainty can lead to an increase in product variety by limiting their inventory of high quality goods and selling low quality goods once their high quality goods have stocked out firms reduce the costs associated with demand uncertainty the model helps explain the extent of product differentiation and suggests a rationale for many common retailing practices such as the use of private labels and full product line forcing by manufacturers the model also yields the testable empirical prediction that higher quality products earn higher absolute margins and lower percentage margins while differences in preferences provide a convincing explanation in many cases for product variety in retail stores we argue that another

a classification of the literature on the planning of substitutable products abstract a company s assortment of products and corresponding inventory levels are constrained by available resources such as production capacity storage space and capital to acquire the inventory thus customers may not always be able to find a most preferred product at the time of purchase this unsatisfied demand is often substituted with an alternative in the extant literature there have been an increasing number of studies that consider product substitution when planning product assortment inventory and capacity in conjunction with pricing in this paper we classify the literature on the planning of substitutable products published in the major om and marketing journals during the past thirty years 1974 2013 and present a comprehensive taxonomy of the literature one criterion is adopted to discuss modeling objectives and three major criteria are provided to define the nature of product substitution including substitution mechanism substitution decision maker and direction of substitutability we also identify research gaps to provide guidance for related research in the future

optimizing product assortment under customer driven demand substitution abstract the problem of product assortment and inventory planning under customer driven demand substitution is analyzed and a mathematical model for this problem is provided in this paper realistic issues in a retail context such as supplier selection shelf space constraints and poor quality procurement are also taken into account the performance of three modified models one that neglects customers substitution behavior another that excludes supplier selection decision and one that ignores shelf space limitations are analyzed separately with computational experiments the results of the analysis demonstrate that neglecting customer driven substitution or excluding supplier selection or ignoring shelf space limitations may lead to significantly inefficient assortments the effects of demand variability and substitution cost on optimal assortment and supplier selection decisions as well as on the optimal revenue are also investigated the main contribution of this paper is the development of a practical and flexible model to aid retailers in finding optimal assortments to maximize the expected profit

inventory decisions for substitutable products with stock dependent demand abstract we study a retailer s inventory policy for two products the products are substitutable and have inventory dependent demand so a higher inventory level of a product increases its sales we model the joint effect of demand stimulation and product substitution on inventory decisions by considering a single period stochastic demand setting we provide the first order optimality conditions for the profit maximizing order quantities and interpret them using marginal analysis we also consider two heuristic solutions that separately account for either demand stimulation or product substitution our numerical analysis reveals that the optimal policy by appropriately using sales information that quantifies substitution and demand stimulation can produce significantly higher profits the profit benefits are lessened under certain circumstances such as when the two products have similar critical fractile values suggesting that in such instances the heuristics may be used effectively

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

optimal production pricing and substitution policies in continuous review production inventory systems abstract we consider the optimal production pricing and substitution policies of a continuous review production inventory system with two products a high end product and a low end product each product has its associated customer stream however the demands for the low end product may be satisfied by the high end product we formulate the problem as a markov decision process and characterize the structure of the optimal control policy which specifies when to produce for each product when to use the high end product as a substitute and how to set the optimal prices we show that a base stock production policy is optimal however the optimal base stock level for each product depends on the inventory level of the other product and it features a monotonic property we also demonstrate that the optimal substitution policy is a rationing policy with the rationing level depending on the total inventory amount we find that the optimal prices can be either decreasing or increasing in the inventory levels depending on the forms of demand functions furthermore we utilize numerical experiments to investigate the impact of different system characteristics on the benefits of using substitution and dynamic pricing finally we investigate when the dynamic pricing strategy and the substitution strategy are complements or substitutes

technical note an expectation maximization method to estimate a rank based choice model of demand we propose an expectation maximization em method to estimate customer preferences for a category of products using only sales transaction and product availability data the demand model combines a general rank based discrete choice model of preferences with a bernoulli process of customer arrivals over time the discrete choice model is defined by a probability mass function pmf on a given set of preference rankings of alternatives including the no purchase alternative each customer is represented by a preference list and when faced with a given choice set is assumed to either purchase the available option that ranks highest in her preference list or not purchase at all if no available product ranks higher than the no purchase alternative we apply the em method to jointly estimate the arrival rate of customers and the pmf of the rank based choice model and show that it leads to a remarkably simple and highly efficient estimation procedure all limit points of the procedure are provably stationa

economic emergence an evolutionary economic perspective abstract the standard neoclassical approach to economic theorising excludes by definition economic emergence and the related phenomenon of entrepreneurship we explore how the most economic of human behaviours entrepreneurship came to be largely excluded from mainstream economic theory in contrast we report that evolutionary economists have acknowledged the importance of understanding emergence and we explore the advances that have been made in this regard we go on to argue that evolutionary economics can make further progress by taking a more naturalistic approach to economic evolution this requires that economic analysis be fully embedded in complex economic system theory and that associated understandings as to how humans react to states of uncertainty be explicitly dealt with we argue that knowledge because of the existence of uncertainty is to a large degree conjectural and thus is closely linked to our emotional states our economic behaviour is also influenced by the reality that we and the systems that we create are dissipative structures thus we introduce the notions of energy gradients and knowledge gradients as essential concepts in understanding economic emergence and resultant economic growth

inventory competition under dynamic consumer choice we analyze a model of inventory competition among n firms that provide competing substitutable goods each firm chooses initial inventory levels for their good in a single period newsboy like inventory model customers choose dynamically based on current availability so the inventory levels at one firm affect the demand of all competingfirms this creates a strategic interaction amongthe firms inventory decisions our work extends earlier work on variations of this problem by karjalainen 1992 lippman and mccardle 1997 and parlar 1988 specifically we model demand in a more realistic way as a stochastic sequence of heterogeneous consumers who choose dynamically from amongthe available goods or choose not to purchase based on a utility maximization criterion we also use a sample path analysis so minimal assumptions are imposed on this demand process we characterize the nash equilibrium of the resulting stocking game and prove it is unique in the symmetric case we show there is a bias toward overstocking caused by competition specifically reducing the quantity stocked at any equilibrium of the game increases total system profits and at any joint optimal set of stocking levels each firm has an individual incentive to increase its own stock for the symmetric case we show that as the number of competing firms increases the overstockingbecomes so severe that total system and individual firm profits approach zero finally we propose a stochastic gradient algorithm for computing equilibria and provide several numerical examples

leaving the mainstream behind uncovering subjective understandings of economics instructors roles in the wake of the economic crisis a number of student organizations and researchers highlighted the lack of pluralism and heterodox approaches in economics curricula the relevance of pluralism becomes clear once set within the implications of a given scientific discourse on reality e g economics and policy making this study explores the role of instructors in co constructing the pluralism discourse and debates while recognizing the role of institutional obstacles to change within the discipline an empirical field study is conducted with lecturers in introductory economics courses at the wu vienna university of economics and business where they place themselves within the pluralism discourse via a q study a mixed method employed for studying subjectivity in socially contested topics in q a set of statements undergo a sorting procedure on a relative ranking scale followed by factor rendering four voices are identified moderate pluralist mainstreamers responsible pluralists and applied pluralists the implications of their ideas are discussed from the viewpoint of discursive institutionalism stressing the role of ideas and discourse in institutional change although a discursive readiness for changes towards more pluralism is claimed strategies for overcoming the difficulties on the institutional level need to be developed

the impact of product substitution on retail merchandising abstract we analyze the impact of product substitution on two key aspects of retail merchandising order quantities and expected profits to perform this analysis we extend the basic news vendor model to include the possibility that a product with surplus inventory can be used as a substitute for out of stock products this extension requires a definition and an approximation for the resulting effective demand under substitution a service rate heuristic is developed to solve the extended problem the performance of this heuristic is evaluated using an upper bound generated by solving the associated lagrangian dual problem our analysis suggests that this heuristic provides a tractable and accurate method to determine order quantities and expected profits under substitution we apply this heuristic to examine how the level of demand uncertainty and correlation and the degree of substitution between products affect order quantities and expected profits under substitutable demand in addition we use the heuristic to better understand the mechanism by which substitution improves expected profits

on the relationship between inventory costs and variety benefits in retailassortments 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

towards a new complexity economics for sustainability some of the most important and urgent topics requiring economic analysis and policy advice are the problems of climate change and environmental sustainability and what can be done to alter corporate and individual behaviour to deal with these issues neoclassical economists tend to focus on market solutions such as carbon trading drawing on ideas of perfect rationality of actors and the appropriateness of marginal analysis to link such policies to the whole range of potential actions from legislative and regulatory to changing individual behaviours requires the economy and society to be analysed in its full complexity recognising that marginal analysis can be not just irrelevant but positively harmful when the need is for systemic shifts in economic and social trajectories this article draws upon a seminar series on complexity economics to consider how heterodox economic analysis can be brought to bear on the issue of the environment to develop a realistic policy agenda for change copyright oxford university press

the shallow or the deep ecological economics movement ecological economics and its policy recommendations have become overwhelmed by economic valuation shadow pricing sustainability measures and squeezing nature into the commodity boxes of goods services and capital in order to make it part of mainstream economic financial and banking discourses there are deeper concerns which touch upon the understanding of humanity in its various social psychological political and ethical facets the relationship with nature proposed by the ecological economics movement has the potential to be far reaching however this is not the picture portrayed by surveying the amassed body of articles from this journal or by many of those claiming affiliation a shallow movement allied to a business as usual politics and economy has become dominant and imposes its preoccupation with mainstream economic concepts and values if instead ecological economists choose a path deep into the world of interdisciplinary endeavour they will need to be prepared to transform themselves and society the implications go far beyond the pragmatic use of magic numbers to convince politicians and the public that ecology still has something relevant to say in the 21st century author s abstract

economic schools of thought on the environment investigating unity and division how do ecological and heterodox economists differ if at all from each other and from neoclassical economists addressing environmental problems in 2009 we probed this question by conducting an international survey across these communities namely at conferences of the european society for ecological economics the association for heterodox economics and the european association of environmental and resource economists the research was designed to gain insight into the extent to which ecological economics can be described as heterodox and a distinct field from orthodox environmental and resource economics conflicting visions of ecological economics have led to a prevalence of neoclassical articles and thought mixed in amongst more heterodox work we introduce a novel classification of work in the field of environmental policy in order to test for the existence of differences in terms of methodological and ideological approaches how heterodox economists understand environmental issues is also an important question to answer if there is to be more collaboration between them and ecological economists the findings have implications for cooperation and the future direction of both ecological and heterodox economics

multi period inventory games with information update this paper addresses the multi period inventory game of two substitutable products with learning in which the demand distribution form in each period is known but one or more parameters are unknown in advance the retailers update the estimates of the unknown parameters using the historical demand information as the transaction proceeds at each period the retailers check the initial inventories and update the forecasts about their demands first then they place the orders which are delivered immediately finally the demands are realized and satisfied by the available inventories the unsatisfied demand of one retailer switches to another and is satisfied by the other s left inventory unsatisfied demand is lost and the excess inventories incur a holding cost all the information is common knowledge the objectives of the two retailers are to make proper ordering decisions to maximize their total expected discount profits respectively we model the problem as a dynamic bayesian game with multi dimension state space we give the conditions under which the state space can be reduced we prove the existence and uniqueness of nash equilibrium and show that the equilibrium ordering strategy is the base stock policy the computation of the base stock levels can be reduced to a game with one dimension state space moreover for the case with perishable product the computation of the base stock levels can be reduced to the newsboy game

pricing and operational recourse in coproduction systems coproduction systems in which multiple products are produced simultaneously in a single production run are prevalent in many industries such systems typically produce a random quantity of vertically differentiated products this product hierarchy enables the firm to fill demand for a lower quality product by converting a higher quality product in addition to the challenges presented by random yields and multiple products coproduction systems often serve multiple customer classes that differ in their product valuations furthermore the sizes of these classes are uncertain employing a utility maximizing customer model we investigate the production pricing downconversion and allocation decisions in a two class stochastic demand stochastic yield coproduction system for the single class case we establish that downconversion will not occur if prices are set optimally in contrast we show that downconversion can be optimal in the two class case even if prices are set optimally we consider the benefit of postponing certain operational decisions e g the pricing or allocation rule decisions until after uncertainties are resolved we use the term recourse to denote actions taken after uncertainties have been resolved we find that recourse pricing benefits the firm much more than either downconversion or recourse allocation do implying that recourse demand management is more valuable than recourse supply management special cases of our model include the single class and two class random yield newsvendor models

assortment planning and inventory decisions under a locational choice model we consider a single period assortment planning and inventory management problem for a retailer using a locational choice model to represent consumer demand we first determine the optimal variety product location and inventory decisions under static substitution and show that the optimal assortment consists of products equally spaced out such that there is no substitution among them regardless of the distribution of consumer preferences the optimal solution can be such that some customers prefer not to buy any product in the assortment and such that the most popular product is not offered we then obtain bounds on profit when customers dynamically substitute using the static substitution for the lower bound and a retailer controlled substitution for the upper bound we thus define two heuristics to solve the problem under dynamic substitution and numerically evaluate their performance this analysis shows the value of modeling dynamic substitution and identifies conditions in which the static substitution solution serves as a good approximation