Assortment Optimization under Variants of the Nested Logit Model 6: For δ > 1, the Powers-of-δ LP Optimum Scaled by (δ^(2γ̄+1), δ^(γ̄+1)) Is Feasible for the Full LPResearch Paper
Motivation
Assortment optimization asks which products a retailer should offer when customers choose among the offered products according to a probabilistic choice model, so as to maximize expected revenue. Under the nested logit model the products are grouped into nests: a customer first picks a nest, then a product inside it. The model is the standard relaxation of the independence of irrelevant alternatives property of the multinomial logit, and it is used throughout revenue management and transportation demand modelling.
Davis, Gallego and Topaloglu (Oper. Res. 62(2), 2014) classify the complexity of the assortment problem under four variants of the nested logit model, according to whether the dissimilarity parameters are at most one and whether a customer who picks a nest always buys there. The problem is NP-hard as soon as some dissimilarity parameter exceeds one (their Theorem 5), and also when the nests have positive no-purchase weights (Theorem 8), so for the general variant approximation is the realistic aim. §6.2 of the paper gives an approximation scheme for the most general variant: for any it restricts each nest to a short list of candidate assortments indexed by the powers of , solves a small linear program, and loses at most a factor of the optimal revenue. This mission formalizes the guarantee behind that scheme, Theorem 12.
Setting
There are nests and products in each nest. Product of nest has revenue and preference weight ; the products are ordered so that . Nest has a no-purchase weight and a dissimilarity parameter , and is the weight of leaving without choosing a nest. Offering in nest gives
The optimal expected revenue is the optimal value of the linear program (3): minimize subject to and for every nest and every . Problem (4) keeps the second family of constraints only for a candidate collection of assortments in each nest.
Let , assumed throughout §6, and fix . Put , , and let , be the least integers with , . For each level , problem (15) maximizes over the assortments with ; its value is . An assortment is feasible for (15) and satisfies . The candidate collection of nest is .
Formalization targets
Goal: Theorem 12 (p. 28)
If is an optimal solution of problem (4) over the candidate collections , then
Milestones (Appendix A.6, pp. 53–54)
- .
- Every nonempty assortment of nest lies in some level .
- If , then .
- Under the same hypothesis, .
- and .
- The scaled pair satisfies for every nonempty .
- The same inequality for .
Companions
- The guarantee stated after Theorem 12: with , the assortment assembled from the candidates solving problem (5) earns at least .
- Proposition 15 (p. 51): when (15) is feasible, one of the explicit assortments , built from at most large and at most small products by a greedy continuous knapsack, is feasible for (15) and within a factor of .
- The count (p. 28).
Significance
Theorem 12 is the analytical half of the approximation scheme. Together with the paper's Theorem 1 it shows that a linear program with variables and at most constraints yields an assortment within a factor of the optimum, for the most general variant, which is NP-hard, and Proposition 15 makes the candidate assortments computable. Letting trades accuracy for running time, so the result is the paper's answer to how well the general problem can be approximated by this LP approach.
The result is proved in the paper; the work here is to formalize the known proof. To the best of a search of the Prove2Me library (local index and platform mirror, October 2026), no nested logit approximation result, and no knapsack lemma matching Proposition 15, has a machine-checked statement or proof. The definitions of the shared model (the instance, , , , the linear programs (3) and (4)) are common to the six missions of this series.
Difficulty
The obvious argument compares an arbitrary assortment with the candidate of its level and uses the candidate's constraint in (4). This fails as a direct comparison because the nest weight enters twice with different exponents, in front of the revenue and in front of , and within one level may vary by a factor . When and when the monotonicity of goes in opposite directions, so the losses must be tracked separately by and , and they are absorbed by the common factor only because . The other half, Proposition 15, concerns a knapsack with both a lower and an upper bound on the total weight, where a feasible solution must be produced as well as a good objective value.
Formalization scope
Products are Fin n ( for ), nests a finite type, powers real powers, and , which gives . The shared model carries the standing assumptions of §1 with the disclosed pins , and (the page allows and zero-weight padding products, under which its convention and its proofs fail). Every statement of the mission also assumes (for ), is the greatest of the (so at least one nest exists) with , and . Integer powers are zpow, and , are written , , which equal the minima of the paper. An optimal solution of (4) is a feasible pair whose is minimal among feasible pairs. The companion guarantee adds , the pin of Theorem 1. In Proposition 15 the capacity row of (33) includes , correcting a printed slip, and the running-time claim is not stated.
The assortments enter Theorem 12 as an arbitrary family with the two properties of p. 28; the theorem is stated for every such family. A level at which (15) has no feasible assortment imposes nothing on , as on the page. Requiring to lie in its level unconditionally would make the hypothesis unsatisfiable for most instances and the goal vacuous; that encoding, and any goal that assumes displays (34)–(36) or the exponent bounds, is ruled out.
Contributions welcome: proofs of the real-power milestones (3)–(5), which are self-contained, of the two cases (6)–(7), and of Proposition 15, whose fractional knapsack lemma (the greedy solution of a continuous knapsack sorted by ratio is optimal) is reusable beyond this mission.
Selected references
- J. M. Davis, G. Gallego, H. Topaloglu, Assortment optimization under variants of the nested logit model, Operations Research 62(2), 2014; cited from the revised manuscript of June 18, 2013. https://doi.org/10.1287/opre.2014.1256
- A. M. Frieze, M. R. B. Clarke, Approximation algorithms for the m-dimensional 0–1 knapsack problem: worst-case and probabilistic analyses, European Journal of Operational Research 15(1), 1984. (cited on p. 50 of the paper for the continuous knapsack (33); link not verified here)
- M. R. Garey, D. S. Johnson, Computers and Intractability: A Guide to the Theory of NP-Completeness, W. H. Freeman, 1979.