Title:  Optimization of Joint Shelf Space Allocation and Pricing

With the increase in product varieties and the availability of consumer choice data, the allocation of limited shelf space is becoming more and more important for retailers. This is especially true for supermarkets that are struggling to make ends meet in a market with razor-thin profit margins. We present an optimization model for shelf space allocation for a product category. Products are allocated to a two-dimensional area of a shelf section where a shelf section consists of multilevel vertical shelves with adjustable shelf heights. We account for product and brand integrity in a shelf section as well as product stackability. Demand is modelled as a function of the space allocated to a product, in terms of the number of display facings, as well as the vertical product location in a shelf section and price sensitivity. The objective is to maximize the retailer's daily gross profits. We report on our computational efforts for solving the resulting complex nonlinear integer program.