Learning Consumer Preferences from Bundle Sales Data
This addresses the challenge for online retailers in setting profitable bundle prices by enabling preference estimation from transaction data, though it appears incremental as it builds on existing methods like EM and Monte Carlo simulation.
The paper tackles the problem of learning consumer preferences from bundle sales data, which classical discrete choice models cannot handle, and proposes an approach that recovers the distribution of consumers' valuations using EM algorithm and Monte Carlo simulation, with theoretical results on identifiability and convergence.
Product bundling is a common selling mechanism used in online retailing. To set profitable bundle prices, the seller needs to learn consumer preferences from the transaction data. When customers purchase bundles or multiple products, classical methods such as discrete choice models cannot be used to estimate customers' valuations. In this paper, we propose an approach to learn the distribution of consumers' valuations toward the products using bundle sales data. The approach reduces it to an estimation problem where the samples are censored by polyhedral regions. Using the EM algorithm and Monte Carlo simulation, our approach can recover the distribution of consumers' valuations. The framework allows for unobserved no-purchases and clustered market segments. We provide theoretical results on the identifiability of the probability model and the convergence of the EM algorithm. The performance of the approach is also demonstrated numerically.