An integrated assortment and shelf-space optimization model with demand substitution and space-elasticity effects

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.