A simultaneous model of multiple-discrete choices of variety and quantity

In many categories, consumers purchase discrete quantities of multiple varieties. For example, when doing grocery shopping for cereals, consumers may purchase in each category three units of brand A, four of brand B, and one of brand C. These decisions are often influenced by nonlinear pricing strategies such as quantity discounts. Modeling such multiple-discrete choices is challenging, as they violate assumptions of standard choice models. In this research, the author introduces a computationally attractive choice model that simultaneously captures 1) variety, 2) discrete quantity, and 3) nonlinear pricing strategies, such as quantity discounts. The model assumes that consumers maximize variety of the choice outcome, while taking into account constraints on utilities of alternatives. Application of the proposed model to two datasets demonstrates the superior fit compared to several rival models. Counterfactual analyses demonstrate that the model is a valuable tool for assortment and pricing decisions.