An efficient method for joint product line selection and pricing with fixed costs

In this paper, we propose an exact solution approach to solve a joint product line selection and pricing problem with a fixed cost factor. We adopt the multinomial logit model to estimate the sales of each marketed product, and suppose that the introduction of each product to the market incurs some constant fixed costs. Utilizing an implicit function form of the optimal price, we transform the original problem into the one with the decision variables for the product introduction only. The efficiency of the proposed transformation approach is demonstrated through simulations. We further discuss its applicability to generalized problems.