An EOQ model with price-dependent supply and demand

This paper considers a generalization of the Economic Order Quantity (EOQ) model for an end-item that requires an input component for production. The quantity of input components available for production is a nondecreasing function of the price offered by the producer to its suppliers, while the end-item demand is also price-dependent. We analyze the behavior of the optimal replenishment and pricing policy, which depends on the economics of production and procurement costs and the prices associated with input components and end-items. This analysis sheds light on how to deal with price-dependent supply in production planning, as well as on the value of supplier heterogeneity and information on the relationship between component price and supply.